Does financial liberalisation ease firms’ credit constraints? 1

In this chapter, we complement our empirical focus in our previous chapter by focusing on the impact of financial liberalisation on financial inclusion at the firm level. Using a firm-level sample of 37,578 observations representing 60 EMDEs covering the time period 2006–2014, we try to understand empirically how foreign banks affect firms’ access to credit. Our results show evidence for foreign bank presence tending to ease firms’ credit constraints. We also find that firms with audited financial statements tend to experience a reduction in credit constraints. Finally, our results point out that for micro, small and medium firms, in relation to the large firms, greater information availability through audited financial statements jointly associated with greater foreign bank presence tends to ease firms’ credit constraints.