Journal of Monetary Economics 2021 DOI: 10.1016/j.jmoneco.2019.11.009 View full text
Oliver Levine, Missaka Warusawitharana

Abstract: Using data on a broad set of European firms, we find a strong positive relationship between the use of external financing and future productivity (TFP) growth within firms. This relationship is robust to various measures of financing and productivity, and strengthens as financing costs increase. We provide evidence against a reverse-causality explanation by showing that this relationship arises from the component of TFP that is outside the information set of the firm. These findings indicate that financial dev…

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