Decoding the nexus: Finance availability and firm growth in the wake of COVID-19

Abstract

Motivation

This article examines the relationship between access to finance and financial constraint to growth in sales and production for Micro, Small, and Medium Enterprises in Iran. MSMEs are critical to economic development, and understanding the financial barriers they face is essential, particularly in the context of an economy like Iran's.

Purpose

Our study aims to explore how external financing and financial constraints affect firm growth. Specifically, it investigates whether access to finance supports growth and how obstacles in obtaining finance may hinder sales and production expansion.

Approach and Methods

Our study is based on data from 486 enterprises across five provinces. We analyzed the impact of access to finance on firm growth during the COVID-19 pandemic using Probit models and Marginal Plots. The analysis also considers firm-level factors such as access to technology, owner education, new employment, bankruptcy experience, and labor adjustment.

Findings

The study demonstrates that external financing is positively associated with the growth of firms, while the obstacles they face in accessing external financing exert a negative and significant impact on firm growth. The results also indicate that access to technology, owner education, and new employment are positively related to the growth of firms. On the other hand, the experience of bankruptcy and labor adjustment has a negative and significant impact on the sales and production growth of firms.

Policy Implications

These findings highlight the importance of improving access to finance for MSMEs and minimizing barriers to external funding. Policies that support technology adoption, education, and employment—especially during crises such as COVID-19—can help mitigate negative impacts and promote sustained firm growth.