The provision of long-term credit and firm growth in developing countries

Florian Leon

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Abstract: Do small and young firms benefit from an increase in the provision of long-term loans? By combining firm-level data from 62 countries (over the period 2006–2016) with a new database on short-term and long-term credit provided to the private sector, this article shows a higher provision of long-term credit does not stimulate growth of small and young firms. On the contrary, an increase in the availability of short-term credit spurs firm growth. The main explanation of this (counter-intuitive) result is the differential impact of short-term and long-term credit provision on small and young firms' access to credit. Young and small firms are able to take advantage of an increase of short-term loans, which allow them to switch from informal finance to bank loans. However, a higher level of long-term credit does not alleviate credit constraints faced by opaque firms because these funds are allocated towards transparent borrowers.

Keywords: Long-term finance; Firm growth; Financial development; Credit constraints (search for similar items in EconPapers)
Date: 2020-08
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Published in Economic Modelling, 2020, 90, pp.66-78. ⟨10.1016/j.econmod.2020.04.023⟩

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Journal Article: The provision of long-term credit and firm growth in developing countries (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04234508

DOI: 10.1016/j.econmod.2020.04.023

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