Firms' ability to finance investments in physical and human capital and innovate through digital, green, and other technologies is central to productivity and economic growth. An extensive body of research shows how these productivity-enhancing investments contribute to boost aggregate output and create new and (sometimes) better jobs. For example, the empirical evidence shows that investments in tangible and intangible assets, innovation, managerial capabilities, and technology adoption are needed to foster the productivity and growth of firms and, therefore, aggregate growth. and productivity. The importance of access to finance to fund firms' productive investments is uncontested. Yet, a myriad of distortions and frictions can prevent an efficient allocation of financial resources to firms. In turn, financial constraints hinder firms' ability to make these investments and even use inputs efficiently, thus negatively impacting firms' productivity and growth. This volume focuses on the links among firm financing, financial constraints, and firm performance, making comprehensive use of firm-level data. It provides, for the first time, a quantitative assessment of the extent of the misallocation of finance, shedding light on the interactions between financial constraints on private firms of different sizes, the role of capital structure, and the impact of such constraints on aggregate growth and productivity.
Authors
- Disclosure Date
- 2024/09/30
- Disclosure Status
- Disclosed
- Doc Name
- Unleashing Productivity through Firm Financing : Overview
- ISBN
- 978-1-4648-1939-1; 978-1-4648-1940-7
- Pages
- 34
- Product Line
- Advisory Services & Analytics
- Published in
- United States of America
- Rel Proj ID
- 1W-Cmc Finance & Productivity Flagship -- P173149
- Unit Owning
- Prosperity-FCI-Finance-GD (EFNDR)
- Version Type
- Final
- Volume No
- 1
Table of Contents
- Front Cover 1
- Contents 5
- Foreword 7
- Preface from the Series Editor 9
- Acknowledgments 11
- About the Authors 13
- Overview 15
- Introduction 15
- Financial Constraints on Smaller Firms Impact Countries’ Growth and Productivity 15
- Policies Can Unlock Firm Financing Constraints to Boost Productivity and Growth 19
- Policy Support Needs to Take a Differentiated Approach toward Debt and Equity Financing 21
- Policy Targeting Should Reflect the Larger Financing Gaps for Smaller and Innovative Firms 25
- A Supportive Enabling Environment Is the Backbone of Firm Financing 27
- Conclusions 28
- Notes 29
- References 30
- Box 20
- Box O.1 Can Fintech Help to Close the Gaps in Firm Financing? 20
- Figures 16
- Figure O.1 Reallocation of Finance Would Lead to Higher Productivity and Growth 16
- Figure O.2 Smaller Firms Have Larger Financing Gaps in EMDEs 17
- Figure O.3 The Scale Effect Is a Greater Source of Potential Productivity Gains Than the Debt-to-Equity Mix 22
- Figure O.4 Equity Financing in High-Income Countries and Middle-Income Countries 23
