Financial Constraint and Productivity: Evidence from Canadian SMEs

Shutao Cao & Danny Leung
The degree to which financial constraint is binding is often not directly observable in commonly used business data sets (e.g., Compustat). In this paper, we measure and estimate the likelihood of a firm being constrained by external financing using a data set of small- and medium-sized Canadian firms. Our measure separates the need for financing from the degree of constraint, conditional on the need for financing. We find that firm size, the current-debt-to-asset ratio and...
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