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The provision of long-term credit and firm growth

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  • Florian Leon

    (CREA, Université du Luxembourg)

Abstract

This paper investigates whether a higher level of long-term credit provision affects the growth of small and young firms. Firm-level data from more than 20,000 firms in 62 countries are combined with a new hand-collected database on short-term and long-term credit provided to the private sector. Using a difference-in-difference framework, our results indicate that, contrary to short-term credit, long-term credit does not stimulate growth of small and young firms. This finding is, at least partially, explained by the differential impact of short-term and long-term credit provision on small and young firms' access to credit. While the provision of short-term credit alleviates credit constraints faced by small and young firms, a larger provision of long- term bank loans has an opposite impact. Our findings are in line with the hypothesis that an increase of long-term credit provision reects a lender's choice to provide more financing to existing clients (intensive margin) to the detriment of firms without previous access to finance (extensive margin).

Suggested Citation

  • Florian Leon, 2019. "The provision of long-term credit and firm growth," DEM Discussion Paper Series 19-08, Department of Economics at the University of Luxembourg.
  • Handle: RePEc:luc:wpaper:19-08
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    More about this item

    Keywords

    Long-term finance; firm growth; financial development; credit constraints;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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