The provision of long-term credit and firm growth

This paper investigates whether a higher level of long-term credit provision affects the growth
of small and young firms. Firm-level data from more than 20,000 firms in 62 countries are combined with a new hand-collected database on short-term and long-term credit provided to the
private sector. Using a difference-in-difference framework, our results indicate that, contrary to
short-term credit, long-term credit does not stimulate growth of small and young firms. This
finding is, at least partially, explained by the differential impact of short-term and long-term
credit provision on small and young firms’ access to credit. While the provision of short-term
credit alleviates credit constraints faced by small and young firms, a larger provision of longterm bank loans has an opposite impact. Our findings are in line with the hypothesis that
an increase of long-term credit provision reflects a lender’s choice to provide more financing to
existing clients (intensive margin) to the detriment of firms without previous access to finance
(extensive margin).