Abstract
This paper investigates the importance of firm size with respect to access to credit relative to firm performance, and other factors which may affect creditworthiness such as management education, location, or the industrial sector to which the firm belongs. The principal findings are that size strongly affects access to credit, compared to performance as well as other variables, suggesting quantitative limitations to credit access. Looking at short-versus long-term loans, the impact of size on access to credit is greater for longer-terms loans. Further, looking at the ownership of the lending institution, it is found that public financial institutions are more likely to lend to large firms. Finally, examining the role of financial constraints relative to other constraints faced by the firm it is found however that financial access constraints may have a less significant differential impact across firms of different sizes than other constraints though cost of finance as a constraint is very important. The authors are grateful to Thorsten Beck, Gledson Carvalho, Soumya Chattopadhyay, Marianne Fay, Luke Haggarty, Patrick Honohan, Leora Klapper, Leonid Koryukin, John Nasir, Maria Soledad Martinez Peria, Mark Thomas, and Jose Guilherme Reis for their valuable comments on earlier versions.
Highlights
Should firm size affect the ability of a firm to access external capital for growth? If access to external financing is based on current performance, or expected future performance— that is, on returns or expected returns—size per se should not have an impact on access to external finance
The following key questions are addressed: (i) whether small firms financing patterns differ from large firms, and whether small firms have less access to credit and face more credit constraints than larger firms; (ii) the importance of firm size, compared to performance, or other factors, in assessing access to credit and credit constraints; (iii) whether credit provision criteria are different for fixed capital and for working capital, (iv) whether bank ownership—public, private or foreign—impacts differentially upon on credit provision across firm sizes, and (v) the role of credit constraints relative to other constraints, in relation to firm size
This paper investigates the importance of firm size, firm performance, and other factors which may affect firms’ access to finance
Summary
Should firm size affect the ability of a firm to access external capital for growth? If access to external financing is based on current performance, or expected future performance— that is, on returns or expected returns—size per se should not have an impact on access to external finance. The following key questions are addressed: (i) whether small firms financing patterns differ from large firms, and whether small firms have less access to credit and face more credit constraints than larger firms; (ii) the importance of firm size, compared to performance, or other factors, in assessing access to credit and credit constraints; (iii) whether credit provision criteria are different for fixed capital (long-term loans) and for working capital (short-term loans), (iv) whether bank ownership—public, private or foreign—impacts differentially upon on credit provision across firm sizes, and (v) the role of credit constraints relative to other constraints, in relation to firm size.
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