Financial constraints, firm dynamics and productivity

This paper studies the relationship between financial constraints, firm dynamics and productivity. Using Lithuanian firm-level data from 2000 to 2018, we construct a measure of financial constraints that elicits information from multiple balance-sheet variables. We estimate that a 1% fall in the average degree of financing constraints improves average productivity by 0.48%. Our results further uncover novel trends on the relationship of financial constraints and firm-age and size.