Productivity and access to credit

An inverted-U relationship between credit constraints and productivity growth

Aghion and al. in this paper identified two counteracting effects of credit access on productivity growth:

1. A positive direct effect of credit access on (incumbent) firms’ productivity growth which reflects the fact that better access to credit makes it easier for entrepreneurs to innovate;
2. A  negative reallocation effect of credit access which decreases the exit rate of incumbent less efficient firms and prevents the entry of potentially more efficient innovators.

The Inverted-U Relationship Between Credit Access and Productivity Growth
Authors: Philippe Aghion, Antonin Bergeaud, Gilbert Cette, Rémy Lecat Hélène Maghin
From: LSE, Banque de France

Investment in intangible assets and credit constraints

Dejuán and al. found that (as the charts below show):

• Until 2008, against a background of easier access to credit and an economic expansion, firms financed their investment, in both tangible and intangible assets, with borrowed funds and with own funds.
• During the crisis and in the subsequent recovery, firms financed investments in intangible assets with almost exclusively own funds. On the contrary, investment in tangible assets, continued to be financed by borrowed funds, albeit to a lesser extent than in prior years.

They argue that firms with a high propensity to invest in intangible assets lost access to external borrowing because lenders perceived them as higher risk since intangible assets could not be used as collateral in financing.

Investment and financing of Spanish non-financial corporations: an analysis using firm-level data
Authors: Daniel Dejuán, Álvaro Menéndez and Maristela Mulino
From: Banco de España