Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305427 
Year of Publication: 
2024
Series/Report no.: 
ADBI Working Paper No. 1467
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
Availability of internal and external financing sources has an impact on firms' investments and growth. Even profitable firms with sufficient financing sources in normal times can be affected by demand and supply shocks such as the COVID-19 lockdown, the energy crisis, or the recent tightening of financing conditions. This paper analyzes the impact of funding difficulties on firms' investment, performance, and growth during normal periods and periods of external shocks using a regression adjustment treatment effect approach. We differentiate among structural barriers of external financing and cyclical worsening of financing conditions, controlling for other major investment barriers. We use survey data collected from the first to the eighth vintage of the European Investment Survey (EIBIS). The empirical evidence shows that micro and small firms and leading innovators are particularly vulnerable to deteriorating funding conditions. Results indicate that firms' lagging in digitalization and green investments are facing more a structural rather than cyclical financing issue. Consequently, policy support should be oriented towards those structural financing impediments.
Subjects: 
SMEs
investment gap
external funding
internal funding
financing constraints
uncertainty
investment barriers
firm performance
growth
digital and green transition
JEL: 
C83
D22
G32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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