The effect of credit constraints on the energy performance of unlisted firms

Nirosha Hewa Wellalage and Ploypailin Kijkasiwat

International Journal of Managerial Finance, 2026, vol. 22, issue 5, 1231-1252

Abstract: PurposeThis paper aims to examine the effects of credit constraints on firms' energy performance, with particular emphasis on two dimensions of energy performance, energy efficiency adoption and renewable energy use of unlisted firms in developing economies.Design/methodology/approachThe study employs firm-level data from the World Bank Enterprise Survey covering unlisted firms in 23 developing countries in Eastern Europe and Central Asia. Given that unlisted firms constitute the majority of businesses in developing economies and typically face greater financing challenges than listed firms, they provide a suitable context for analysing the role of credit constraints. A Recursive Probit model is applied to examine firms' adoption of energy efficiency measures and renewable energy use, while accounting for potential endogeneity.FindingsThe results indicate that credit constraints significantly undermine firms' energy-related investment decisions. Specifically, firms facing credit constraints are less likely to adopt energy efficiency measures and utilise renewable energy technologies. Credit constraints reduce the probability of renewable energy adoption by approximately 4.14 percentage points. After controlling for endogeneity, the probability of achieving energy efficiency decreases by about 1.48 percentage points for credit-constrained firms. In addition, the findings demonstrate that informal finance does not mitigate the adverse effects of credit constraints; instead, reliance on informal finance exacerbates the negative impact of credit constraints on firms' energy performance.Practical implicationsThe findings highlight the importance of access to formal finance in shaping firms' investment decisions related to energy efficiency. Managers and financial institutions should recognise that financing challenges can discourage productivity-enhancing and efficiency-oriented investments, particularly among unlisted firms in developing economies.Social implicationsGiven that credit-constrained firms are significantly less likely to adopt energy-efficient measures and renewable energy technologies, the results suggest that financial challenges may hinder broader efforts to improve energy efficiency and promote sustainable development in developing countries.Originality/valueThis study contributes to the managerial and corporate finance literature by providing firm-level evidence on how credit constraints influence energy-related investment decisions among unlisted firms. By focusing on unlisted firms in developing economies and examining the role of informal finance, the paper extends existing research on financing constraints beyond traditional investment outcomes and offers new insights into the financial determinants of firms' energy performance.

Keywords: Credit constraints; Energy efficiency; Renewable energy adoption; Unlisted firms; Developing economies (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-12-2025-0662

DOI: 10.1108/IJMF-12-2025-0662

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