Financial Constraints and Firm Performance: Evidence from SMEs Using Survey Data and Propensity Score Matching

Mauri Kotamaki
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Mauri Kotamaki: Turku School of Economics, University of Turku, Finland

No 172, Discussion Papers from Aboa Centre for Economics

Abstract: This paper estimates the causal effect of financial constraints on the short-term performance of Finnish SMEs using survey data from 2016-2024 and propensity score matching (PSM). We examine six outcomes: turnover, employment, investment, profitability, solvency, and innovation, and report effects on both odds and probability scales. Financial constraints significantly increase the likelihood of adverse outcomes: constrained firms face 10-30\% higher odds of reporting deterioration in core indicators, with the largest effects on solvency (29\% higher odds) and profitability, followed by investment and turnover; employment effects are smaller, and innovation effects modest. Marginal effects indicate up to a 4 percentage point reduction in the probability of improvement for key outcomes. Results are robust to multiple-testing adjustments, and alternative specifications. Heterogeneity analysis reveals that the effects vary by firm size, pointing to a dual mechanism: turnover and profitability effects are strongest for micro and small firms, reflecting immediate liquidity stress, while employment and investment effects intensify with firm size, suggesting real adjustments (growth obstacles) are more pronounced in mid-sized SMEs. Policy implications and directions for future research are discussed.

Keywords: credit constraints; financing; impact analysis; propensity score matching (search for similar items in EconPapers)
JEL-codes: C21 D22 G32 L25 O16 (search for similar items in EconPapers)
Pages: 31
Date: 2025-10
New Economics Papers: this item is included in nep-sbm
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