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Financial Frictions and the Great Productivity Slowdown

Romain Duval, Gee Hee Hong, Yannick Timmer and Philip Strahan

Review of Financial Studies, 2020, vol. 33, issue 2, 475-503

Abstract: We study the role of financial frictions for productivity. Using a rich cross-country firm-level data, we exploit variation in preexisting exposure to the 2008 global financial crisis to study the post-crisis productivity slowdown. Firms with weaker precrisis balance sheets experienced a highly persistent decline in post-crisis total factor productivity growth relative to their less vulnerable counterparts, accounting for about one-third of the within-firm productivity slowdown. This decline was larger for firms that faced a more severe tightening of credit conditions. Financially fragile firms cut back on innovation activities, one channel through which financial frictions weakened post-crisis productivity growth.

Date: 2020
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