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Not All Outcomes Are Equal: Financial Constraints and Firm-Level Adjustments

Author

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  • Kotamäki, Mauri

Abstract

This study estimates the causal impact of financial constraints on Finnish SMEs using 68,000 survey observations (2016–2024) linked to tax registry data. Applying propensity score matching with extensive balance checks and multiple-testing control, I examine six outcomes: turnover, employment, investment, profitability, solvency, and innovation. Financial constraints sharply increase the likelihood of adverse outcomes: solvency and profitability risks rise by up to 29%, and the probability of improvement falls by up to 4 percentage points. Registry-based analysis confirms considerably lower taxable income growth. Heterogeneity analysis reveals a dual mechanism: micro firms suffer liquidity shocks, while mid-sized firms cut jobs and investment. These findings underscore the need for differentiated credit policies, rapid-access liquidity support for micro firms and adapted investment financing for growth-oriented mid-sized SMEs, and offer actionable insights for SME managers, including the importance of precautionary cash buffers, proactive relationship banking, and early financing commitments.

Suggested Citation

  • Kotamäki, Mauri, 2026. "Not All Outcomes Are Equal: Financial Constraints and Firm-Level Adjustments," MPRA Paper 128615, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:128615
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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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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