Is Firm's Productivity Related to its Financial Structure? Evidence from Microeconomic Data

Firms undertaking innovative activities typically hold a larger share of immaterial assets and have a different capital structure. Differences in the propensity to innovate are likely to translate in different TFP levels. We use data on a panel of firms to study the relationship between firms' capital structure and TFP. We identify variations in financial structure induced by factors that do not directly affect the share of intangibles and test whether these exogen-ous variations affect productivity. We document a negative relationship between leverage and productivity, consistently with theories of financial structure based on bankruptcy costs, control rights and equityholders-debtholders' conflicts.