Cover of: Do firms want to borrow more? | Abhijit V. Banerjee

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An edition of Do firms want to borrow more? (2002)

Do firms want to borrow more?

testing credit constraints using a directed lending program

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This edition was published in by Massachusetts Institute of Technology, Dept. of Economics in Cambridge, Mass.

Written in English

30 pages

We begin the paper by laying out a simple methodology that allows us to determine whether firms are credit constrained, based on how they react to changes in directed lending programs. The basic idea is that while both constrained and unconstrained firms may be willing to absorb all the directed credit that they can get (because it may be cheaper than other sources of credit), constrained firms will use it to expand production, while unconstrained firms will primarily use it as a substitute for other borrowing.We then apply this methodology to firms in India that became eligible for directed credit as a result of a policy change in 1998. Using firms that were already getting this kind of credit before 1998 to control for time trends, we show that there is no evidence that directed credit is being used as a substitute for other forms of credit. Instead the credit was used to finance more production - there was significant acceleration in the rate of growth of sales and profits for these firms. We conclude that many of the firms must have been severely credit constrained. Keywords: Banking, Credit Constraints, India. JEL Classifications: O16, G2

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Cover of: Do firms want to borrow more?
Do firms want to borrow more?: testing credit constraints using a directed lending program
2002, Massachusetts Institute of Technology, Dept. of Economics
in English

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Do firms want to borrow more?

testing credit constraints using a directed lending program

This edition was published in by Massachusetts Institute of Technology, Dept. of Economics in Cambridge, Mass.


Edition Description

We begin the paper by laying out a simple methodology that allows us to determine whether firms are credit constrained, based on how they react to changes in directed lending programs. The basic idea is that while both constrained and unconstrained firms may be willing to absorb all the directed credit that they can get (because it may be cheaper than other sources of credit), constrained firms will use it to expand production, while unconstrained firms will primarily use it as a substitute for other borrowing.We then apply this methodology to firms in India that became eligible for directed credit as a result of a policy change in 1998. Using firms that were already getting this kind of credit before 1998 to control for time trends, we show that there is no evidence that directed credit is being used as a substitute for other forms of credit. Instead the credit was used to finance more production - there was significant acceleration in the rate of growth of sales and profits for these firms. We conclude that many of the firms must have been severely credit constrained. Keywords: Banking, Credit Constraints, India. JEL Classifications: O16, G2

Edition Notes

"May 2002."

Includes bibliographical references (p. 29-30).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.

Series
Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-25, Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-25.

The Physical Object

Pagination
1, 30, [10] p. :
Number of pages
30

ID Numbers

Open Library
OL24640051M
Internet Archive
dofirmswanttobor00bane
OCLC/WorldCat
58801991

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April 30, 2011 Edited by ImportBot Added new cover
April 30, 2011 Created by ImportBot Imported from Internet Archive item record.