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The Missing Link Between Financial Constraints and Productivity

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Author Info
Marialuz Moreno Badia
Veerle Slootmaekers

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Abstract

This paper provides new evidence on the link between finance and firm-level productivity focusing on the case of Estonia. We contribute to the literature in two important respects: (1) we look explicitly at the role of financial constraints; and (2) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors with the exception of R&D, where the dampening effect of financial constraints on productivity is remarkably large. These results are robust to a variety of sensitivity tests.

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Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number 20808.

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Date of creation: 2008
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Handle: RePEc:lic:licosd:20808

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Related research
Keywords: financing constraints; productivity; SMEs;

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects

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