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Does Financing Spur Small Business Productivity? Evidence from a Natural Experiment

  • Karthik Krishnan
  • Debarshi Nandy
  • Manju Puri

We analyze how increased access to financing affects firm total factor productivity (TFP) by exploiting a natural experiment following interstate banking deregulations which increased access to bank financing. We find that firms' TFP increases after their states implement these deregulations. Using a regression discontinuity approach based on Small Business Administration's funding eligibility criteria, we show that TFP increases following the deregulations are significantly greater for financially constrained firms. Our results suggest that greater access to financing allows financially constrained firms to invest in productive projects that may otherwise not be taken up.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20149.

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Date of creation: May 2014
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Handle: RePEc:nbr:nberwo:20149
Note: CF PR
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