GGDC Research Memorandum Nr. 120
Title: Does Access to Finance Lower Firms' Cost of Capital? Empirical Evidence from International Manufacturing Data
Author(s): Addisu A. Lashitew
Abstract: Lack of access to finance is argued to be one of the most binding constraints for firm growth. Faced with financing constraints that raise their cost of capital, small firms fail to build up their capital stock and lower their marginal revenue of capital. This paper uses a unique, international, manufacturing dataset to examine if financial access indeed lowers firms� cost of capital. The results show that credit access, used as a measure of firm-level financial access, has significant negative effect on the cost of capital. The results remain significant when credit access is instrumented with indicators of firms� political connections. Taking advantage of the large country coverage of the dataset, I also relate firms� cost of capital to country-level measures of financial development and find that financial development reduces the cost of capital. These findings confirm that financial access allows firms to employ more capital.
Date: July 2011 | Full Text
Last modified: | 02 April 2024 11.21 a.m. |
More news
-
02 May 2024
Johan Remkes te gast in podcast Leiderschap in Onzekere Tijden Live
Oud-minister en oud-informateur Johan Remkes is op 15 mei te gast in de Podcast Leiderschap In Onzekere Tijden. In de liveopname van de podcastaflevering gaat hij met FEB-hoogleraren Janka Stoker en Harry Garretsen in gesprek over de huidige...
-
29 April 2024
The Maddison Project: New 2023 Update Illuminates Origins of Modern Economic Growth
In a new update of the renowned Maddison Project Database, economic historians shed new light on the genesis of modern economic growth.
-
29 April 2024
Guido Berends and Hylke Dijkstra win FEB Research Awards 2023
The awards for best PhD thesis and best graduate of the research master were presented at the annual PhD conference held on April 18. Guido Berends won the Best PhD Thesis Award 2023 and Hylke Dijkstra won the Research Master Graduate Award 2023.