Credit constraints and productivity of SMEs: Evidence from Canada

Shutao Cao and Danny Leung

Economic Modelling, 2020, vol. 88, issue C, 163-180

Abstract: To what extent firms are constrained by external credit is usually unobserved in commonly used firm-level data. We use a survey of financing among Canadian small and medium-sized enterprises to measure the likelihood of a firm being constrained by credit. We find that firm size, current debt-to-asset ratio and cash flow are robust indicators of being financially constrained, while long-term debt to asset ratio is not a significant indicator of credit constraints. We then estimate the firm-level total factor productivity, taking into account the measured credit constraints. Omitting credit constraints leads to an upward bias of productivity estimates, by 4 percent. In addition, we find no strong evidence that suggests credit constraints lead to slower productivity growth. Finally, we confirm that both investment and employment growth are negatively affected by the measured credit constraints.

Keywords: Productivity; Financial constraint; Firm growth (search for similar items in EconPapers)
JEL-codes: D24 G32 L25 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:88:y:2020:i:c:p:163-180

DOI: 10.1016/j.econmod.2019.09.018

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