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Does access to external finance improve productivity? Evidence from a natural experiment

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Author Info

  • Butler, Alexander W.
  • Cornaggia, Jess

Abstract

We study the relation between access to finance and productivity. Our contribution to the literature is a clean identification of a causal effect of access to finance on productivity. Specifically, we exploit an exogenous shift in demand for a product to expose how producers adapt their productivity in the presence of varying levels of access to finance. We use a triple differences testing approach and find that production increases the most over the sample period in areas with relatively strong access to finance, even in comparison with a control group. This result is statistically significant and robust to a variety of controls, alternative variables, and tests. The causal effect of access to finance on productivity that we find speaks to the larger role of finance in economic growth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 99 (2011)
Issue (Month): 1 (January)
Pages: 184-203

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Handle: RePEc:eee:jfinec:v:99:y:2011:i:1:p:184-203

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Access to finance Economic growth;

References

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  1. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
  2. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
  3. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
  4. Mathilde Maurel, 2001. "Investment, Efficiency, and Credit Rationing: Evidence from Hungarian Panel Data," William Davidson Institute Working Papers Series 403, William Davidson Institute at the University of Michigan.
  5. Whited, Toni M., 2006. "External finance constraints and the intertemporal pattern of intermittent investment," Journal of Financial Economics, Elsevier, vol. 81(3), pages 467-502, September.
  6. Becker, Bo, 2007. "Geographical segmentation of US capital markets," Journal of Financial Economics, Elsevier, vol. 85(1), pages 151-178, July.
  7. Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, vol. 63(5), pages 2085-2121, October.
  8. Feder, Gershon, 1985. "The relation between farm size and farm productivity : The role of family labor, supervision and credit constraints," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 297-313, August.
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Citations

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Cited by:
  1. Castillo, Leopoldo Laborda & Guasch, Jose Luis, 2012. "Overdraft facility policy and firm performance : an empirical analysis in eastern European Union industrial firms," Policy Research Working Paper Series 6101, The World Bank.
  2. Kandilov, Amy & Kandilov, Ivan, 2013. "The Impact of Interstate Bank Branching Deregulations on the U.S. Agricultural Sector: From Better Access to Credit to Higher Farm Sales and Profits," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149820, Agricultural and Applied Economics Association.
  3. Karthik Krishnan & Debarshi Nandy & Manju Puri, 2014. "Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment," NBER Working Papers 20149, National Bureau of Economic Research, Inc.
  4. Minjia Chen & Alessandra Guariglia, . "Financial constraints and firm productivity in China: do liquidity and export behavior make a difference?," Discussion Papers 11/09, University of Nottingham, GEP.
  5. Cornaggia, Jess, 2013. "Does risk management matter? Evidence from the U.S. agricultural industry," Journal of Financial Economics, Elsevier, vol. 109(2), pages 419-440.

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