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Decoding the nexus: Finance availability and firm growth in the wake of COVID- 19
Brief about:
Journal Article (2025)
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Investigates the relationship between access to finance and growth in Micro, Small, and Medium Enterprises (MSMEs) in Iran, with a focus on the moderating effects of the COVID-19 pandemic.
The COVID-19 pandemic has severely disrupted the financial ecosystem, affecting financial markets and business financing globally. In Iran, the pandemic exacerbated existing economic challenges, including international sanctions, negative economic growth, and high inflation. Iranian firms experienced a 50% decline in sales growth during the first two months of the outbreak, with 34% of business owners reporting income decreases of more than 75% by June 2020. The majority of firms (71%) lacked sufficient cash reserves to cope with revenue reductions. Despite these challenges, firms have sought new financing sources, with the ratio of bank loans to deposits exceeding 82% by early 2022. The Central Bank of Iran reported a 160% growth in banking loans to the industrial sector from 2014-2019. However, the Iranian government’s financial difficulties, due to declining revenues from sanctions and oil prices, have limited resources for protectionist policies.
The study aims to fill a gap in the literature by examining the moderating role of the COVID-19 pandemic on the finance-growth nexus for MSMEs in Iran, a country under international sanctions. Previous studies have focused on financial constraints during the global financial crisis of 2007-08, with less attention to emerging economies. The study uses a unique dataset from a survey conducted by the Academic Center for Education, Culture, and Research (ACECR) at Tarbiat Modares University in Tehran. It explores the impact of financial constraints on MSMEs’ growth in a sanctioned country experiencing prolonged economic downturns, highlighting the importance of access to finance for firm growth and sustainability during crises.
Key findings
- Access to external finance is positively associated with the growth of MSMEs in terms of sales and production.Evidence
The study analyzed data from 486 enterprises across five provinces in Iran, revealing that firms with access to finance experienced significant growth in sales and production. Specifically, 20.9% of respondents reported access to finance, while 68.5% reported non-access.
What it meansAccess to finance is crucial for MSMEs' growth, particularly in a sanctioned economy like Iran, where financial constraints are prevalent.
- Financial constraints negatively impact firm growth, with more pronounced effects during the COVID-19 pandemic.Evidence
Firms without access to finance experienced a significant decline in sales and production growth, especially those affected by the pandemic. The study found that non-financed firms affected by COVID-19 exhibited lower sales growth compared to those not affected.
What it meansThe lack of access to finance exacerbates the negative impact of crises like COVID-19 on firm growth, highlighting the need for improved financial access.
- Younger firms exhibit greater growth compared to older counterparts, with access to technology, owner education, and new employment positively affecting growth.Evidence
Firms aged 1-5 years showed greater growth than those aged 6-10 years. Access to technology (65% of firms), owner education (65% with a university degree), and new employment (66% hired new employees) were positively associated with growth.
What it meansYounger firms and those with access to technology and educated owners are better positioned for growth, emphasizing the importance of these factors in firm development.
- Bankruptcy and labor adjustment negatively impact MSMEs' sales and production growth.Evidence
64.8% of firms reported exposure to bankruptcy, and 52% reported labor adjustments, both of which were associated with negative growth impacts.
What it meansFinancial instability and workforce changes hinder firm growth, underscoring the need for stability and support in these areas.
- The COVID-19 pandemic moderates the relationship between access to finance and firm growth.Evidence
Financed firms unaffected by COVID-19 exhibited greater growth than those impacted by the pandemic. However, non-financed firms affected by COVID-19 showed a more pronounced reduction in growth.
What it meansThe pandemic's impact on firm growth is mitigated by access to finance, highlighting the importance of financial support during crises.
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Decoding the nexus: Finance availability and firm growth in the wake of COVID- 19
Cite this brief: Cheratian, Iman. 'Decoding the nexus: Finance availability and firm growth in the wake of COVID- 19'. Acume. https://www.acume.org/r/decoding-the-nexus-finance-availability-and-firm-growth-in-the-wake-of-covid-19/
Brief created by: Dr Iman Cheratian | Year brief made: 2025
Original research:
- Cheratian, I., ‘Decoding the nexus: Finance availability and firm growth in the wake of COVID- 19’. –
Research brief:
Investigates the relationship between access to finance and growth in Micro, Small, and Medium Enterprises (MSMEs) in Iran, with a focus on the moderating effects of the COVID-19 pandemic.
The COVID-19 pandemic has severely disrupted the financial ecosystem, affecting financial markets and business financing globally. In Iran, the pandemic exacerbated existing economic challenges, including international sanctions, negative economic growth, and high inflation. Iranian firms experienced a 50% decline in sales growth during the first two months of the outbreak, with 34% of business owners reporting income decreases of more than 75% by June 2020. The majority of firms (71%) lacked sufficient cash reserves to cope with revenue reductions. Despite these challenges, firms have sought new financing sources, with the ratio of bank loans to deposits exceeding 82% by early 2022. The Central Bank of Iran reported a 160% growth in banking loans to the industrial sector from 2014-2019. However, the Iranian government’s financial difficulties, due to declining revenues from sanctions and oil prices, have limited resources for protectionist policies.
The study aims to fill a gap in the literature by examining the moderating role of the COVID-19 pandemic on the finance-growth nexus for MSMEs in Iran, a country under international sanctions. Previous studies have focused on financial constraints during the global financial crisis of 2007-08, with less attention to emerging economies. The study uses a unique dataset from a survey conducted by the Academic Center for Education, Culture, and Research (ACECR) at Tarbiat Modares University in Tehran. It explores the impact of financial constraints on MSMEs’ growth in a sanctioned country experiencing prolonged economic downturns, highlighting the importance of access to finance for firm growth and sustainability during crises.
Findings:
Access to external finance is positively associated with the growth of MSMEs in terms of sales and production.
The study analyzed data from 486 enterprises across five provinces in Iran, revealing that firms with access to finance experienced significant growth in sales and production. Specifically, 20.9% of respondents reported access to finance, while 68.5% reported non-access.
Access to finance is crucial for MSMEs’ growth, particularly in a sanctioned economy like Iran, where financial constraints are prevalent.
Financial constraints negatively impact firm growth, with more pronounced effects during the COVID-19 pandemic.
Firms without access to finance experienced a significant decline in sales and production growth, especially those affected by the pandemic. The study found that non-financed firms affected by COVID-19 exhibited lower sales growth compared to those not affected.
The lack of access to finance exacerbates the negative impact of crises like COVID-19 on firm growth, highlighting the need for improved financial access.
Younger firms exhibit greater growth compared to older counterparts, with access to technology, owner education, and new employment positively affecting growth.
Firms aged 1-5 years showed greater growth than those aged 6-10 years. Access to technology (65% of firms), owner education (65% with a university degree), and new employment (66% hired new employees) were positively associated with growth.
Younger firms and those with access to technology and educated owners are better positioned for growth, emphasizing the importance of these factors in firm development.
Bankruptcy and labor adjustment negatively impact MSMEs’ sales and production growth.
64.8% of firms reported exposure to bankruptcy, and 52% reported labor adjustments, both of which were associated with negative growth impacts.
Financial instability and workforce changes hinder firm growth, underscoring the need for stability and support in these areas.
The COVID-19 pandemic moderates the relationship between access to finance and firm growth.
Financed firms unaffected by COVID-19 exhibited greater growth than those impacted by the pandemic. However, non-financed firms affected by COVID-19 showed a more pronounced reduction in growth.
The pandemic’s impact on firm growth is mitigated by access to finance, highlighting the importance of financial support during crises.