Can Small Business Lending Programs Disincentivize Growth? Evidence from India's Priority Sector Lending Program

Bhue, G and Prabhala, N and Tantri, P L (2019) Can Small Business Lending Programs Disincentivize Growth? Evidence from India's Priority Sector Lending Program. Working Paper. SSRN. (Unpublished)

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Abstract

Programs to direct finance to small firms are ubiquitous. We study their real-side effects for target firms, exploiting the discontinuities in eligibility in such a program in India. We show that small firm lending programs can slow real growth. Several robustness, placebo, heterogeneity, and external validation tests as well as extensive margin tests are consistent with such distortionary effects. These findings collectively show that financial constraints matter: they shape how firms form and grow. Firms give up growth for better financing access but in doing so, they distort their growth trajectories by remaining small for longer periods of time.

Affiliation: Indian School of Business
ISB Creiators:
ISB Creators
ORCiD
Tantri, P L
UNSPECIFIED
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Small business lending, Soft information, Lending quotas, Bank power, Small firm growth
Subjects: Business Innovation
Finance
Depositing User: Ilayaraja M
Date Deposited: 01 Jul 2019 19:03
Last Modified: 01 Jul 2019 19:03
URI: http://eprints.exchange.isb.edu/id/eprint/1205
Publisher URL: http://dx.doi.org/10.2139/ssrn.2960598
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