Essays on firms, banks and Access to finance

This thesis is a collection of three empirical essays on firms, banks, and access to finance. Chapter 1 provides evidence that credit subsidies for exports are substantially misallocated towards financially unconstrained firms. Using loan level data for firms and exploiting an exogenous change in loan eligibility, I show that publicly listed firms are financially unconstrained, and are also allocated nearly 44% of all subsidized loans. The opportunity cost of these misallocated funds is significant as even the more productive privately held firms are shown to be financially constrained. Chapter 2 studies the role of banks in the transmission of financial flows to the economy. Exploiting a large and unexpected liquidity upsurge in an emerging economy, the chapter examines changes in bank lending behavior and finds very stark results. Bank lending to firms did not increase despite a substantial drop in the cost of capital. The results suggest that banks may be limited in their ability to extend credit due to severe agency problems. Chapter 3 analyzes changes in firm ownership structure that may be caused by the level and ease of obtaining outside financing.