Abstract
Using administrative records on firm-level output prices and quantities, combined with quasi-experimental variation in credit availability, we explore the interconnection between the productivity and pricing effects of financial shocks. We find that these shocks affect firms’ technical productivity growth (TFPQ) in the long-run and induce firms to change their pricing policies. As a result, standard estimates based on revenue-based measures (TFPR), which conflate pricing and productivity effects, generate biased predictions regarding the effects of financial shocks on firms’ real productivity growth. Moreover, we document that these nominal adjustments have real implications. The mechanism operates through a firm’s balance sheet. The ability to adjust prices releases pressure on firms to cut expenditures on productivity-enhancing activities thereby mitigating the effect on future productivity growth.
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