Karthik Krishnan, Debarshi Nandy, Manju Puri, 26 September 2014

Greater access to capital could increase small firms’ investment efficiency. Some argue, however, that it may result in wasteful expenditures. This column discusses how small firms were affected by the Interstate Banking and Branching Efficiency Act of 1994, which allowed interstate banking. The authors find an increase in the productivity of firms located in states that allowed out-of-state banks to cross their borders. Smaller firms experienced a larger productivity increase, supporting of the effectiveness of a greater access to capital.

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