Does Access to Finance Lower Firmsâ€™ Cost of Capital? Empirical Evidence from International Manufacturing Data
AbstractLack of access to finance is argued to be one of the most binding constraints for firm growth. There is, however, limited empirical evidence on the relationship between access to finance and the cost of capital. This paper uses international manufacturing data to analyze the effect of access to finance on firms? cost of capital. Using a unique dataset that covers tens of thousands firms in more than 80 countries, I examine the effect of credit access on firms? cost of capital. I address the endogeneity of credit access by instrumenting it with indicators of the strength of firms? political connections. The results show that credit access has significant negative effect on the cost of capital. Taking advantage of the large country coverage of the dataset, I also relate firms? cost of capital to country-level measures of financial development and find that financial development reduces cost of capital.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Groningen Growth and Development Centre, University of Groningen in its series GGDC Research Memorandum with number GD-120.
Date of creation: 2011
Date of revision:
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joke Bulthuis).
If references are entirely missing, you can add them using this form.