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Borrowing constraints and firm dynamics

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What is the impact of credit market frictions on firm dynamics? In this paper we investigate the role of partial credit constraints on the firm's investment and probability of survival. We consider the probability of credit rationing estimated using a disequilibrium model to identify SMEs that were affected by borrowing constraints in the period between 2010 and 2012. We find that firms that were estimated to have been partially credit constrained in this period have lower contemporaneous probability of survival and invest less, ceteris paribus.
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