The Impact of Financial Constraints on Total Factor Productivity: Evidence from Slovak SMEs
František VRÁB
https://doi.org/10.18267/pr.2026.vol.2587.35
Abstract: This paper investigates the relationship between financing mechanisms and the Total Factor Productivity (TFP) of small and medium-sized enterprises (SMEs) in Slovakia during the 2015–2025 period. Addressing the research gap in capital allocation efficiency within post-transitional CEE economies, the study employs a robust methodological framework. We utilize a panel dataset of 520 firms and apply the semi-parametric method Olley-Pakes estimation to control for selection and simultaneity biases. The analysis is further enhanced by a Random Forest algorithm to identify non-linear tipping points in financial structures. Results indicate that while ICT investments significantly drive productivity growth, high levels of traditional debt (leverage exceeding 0.60) lead to capital misallocation and hinder creative destruction. Conversely, alternative financing sources, such as venture capital and crowdfunding, act as vital catalysts for TFP, particularly in technology-intensive sectors. These findings suggest that diversifying financing beyond traditional banking is essential for the digital transformation and long-term competitiveness of the Slovak SME sector.
Keywords: small and medium-sized enterprises, total factor productivity, alternative financing, capital misallocation, Olley-Pakes estimation
JEL Classification codes: D24, G32, O33
Fulltext: PDF
Published by: Prague University of Economics and Business, Oeconomica Publishing House
Year of publication: 2026
Online publication date: 20 May 2026
Copyright: Authors of the papers
ISBN 978-80-245-2587-7
ISSN 2453-6113
Pages 420-427