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Firm growth and financial constraints: evidence from a policy-based loan program

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  • Timothy E. Dore

    (Federal Reserve Board)

  • Tetsuji Okazaki

    (The University of Tokyo and the Research Institute of Economy, Trade, and Industry)

  • Ken Onishi

    (Hitotsubashi University)

  • Naoki Wakamori

    (Hitotsubashi University)

Abstract

Credit supply to small businesses may ease financial frictions, helping them grow faster and re-optimize the factor inputs for production, particularly when lumpy and/or long-term investment is required. We study how government loan programs address these two issues by combining the loan-level data with firms’ financial statements. We find that, with additional credit supplied by government, (i) small businesses are able to grow faster than similar firms, (ii) financially constrained firms invest relatively more on capital, and (iii) firms invest in long-term projects. We also find that differences in debt levels are persistent over time, suggesting that private credit supply does not substitute for the government-provided credit.

Suggested Citation

  • Timothy E. Dore & Tetsuji Okazaki & Ken Onishi & Naoki Wakamori, 2025. "Firm growth and financial constraints: evidence from a policy-based loan program," Small Business Economics, Springer, vol. 65(1), pages 131-162, June.
    • Handle: RePEc:kap:sbusec:v:65:y:2025:i:1:d:10.1007_s11187-024-00986-0
    DOI: 10.1007/s11187-024-00986-0
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    Keywords

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    JEL classification:

    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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