How Important Are Financing Constraints? The Role of Finance in the Business Environment
What role does the business environment play in promoting and restraining firm growth? Recent literature points to a number of factors as obstacles to growth. Inefficient functioning of financial markets, inadequate security and enforcement of property rights, poor provision of infrastructure, ineff...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2006/01/9836091/important-financing-constraints-role-finance-business-environment http://hdl.handle.net/10986/8998 |
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okr-10986-8998 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCING ACCOUNTING BANK EQUITY BANK PAPERWORK BANK POLICY BIASES BINDING CONSTRAINT BINDING CONSTRAINTS BORROWING BUSINESS ENVIRONMENT BUSINESS ENVIRONMENTS CHECKS COLLATERAL COLLATERAL REQUIREMENTS COMMON LAW COMPETITORS CORRUPTION COUNTRY DUMMIES COUNTRY FIXED EFFECT COUNTRY FIXED EFFECTS COUNTRY LEVEL COUNTRY REGRESSIONS COUNTRY-LEVEL INDICATORS DEMAND FOR CAPITAL DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC IMPACT EMPLOYMENT ENTREPRENEURS EQUIPMENT ERROR TERM ESTIMATED COEFFICIENTS EXCHANGE RATE EXCHANGE RATES EXCLUSION EXPANSION EXPLANATORY VARIABLES EXPORTER EXTERNAL FINANCE EXTERNAL FINANCING FARMERS FINANCE ACCESS FINANCIAL DEVELOPMENT FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL OBSTACLE FINANCIAL OBSTACLES FINANCIAL POLICIES FINANCIAL SECTOR FINANCIAL SECTOR REFORM FINANCIAL SECTOR REFORMS FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING OBSTACLE FINANCING OBSTACLES FIRM GROWTH FIRM PERFORMANCE FIRM SIZE FIRM SIZES FOREIGN BANKS FOREIGN EXCHANGE FOREIGN FIRMS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GOVERNMENT POLICIES GROWTH LITERATURE GROWTH OPPORTUNITIES GROWTH RATE GROWTH RATES GROWTH REGRESSION GROWTH REGRESSIONS HIGH GROWTH HIGH GROWTH RATE HIGH INCOME COUNTRIES HIGH INFLATION HIGH INTEREST RATE HIGH INTEREST RATES INCOME INCOME GROUP INCOME GROUPS INCOME LEVEL INCOME LEVELS INDEPENDENT VARIABLES INDIVIDUAL COUNTRIES INDIVIDUAL FIRM INDIVIDUAL FIRMS INFLATION INFLATION RATES INFLATION TAX INSTITUTIONAL DEVELOPMENT INSTRUMENT INTEREST RATE INTEREST RATES INTERNATIONAL ACCOUNTING STANDARDS INVESTMENT CLIMATE JUDICIAL EFFICIENCY LACK OF ACCESS LATIN AMERICAN LEASING LEGAL CONSTRAINTS LEGAL ENFORCEMENT LEGAL SYSTEMS LICENSING LIMITED ACCESS LOAN LONG-TERM CAPITAL LONG-TERM LOANS MACROECONOMIC INSTABILITY MACROECONOMIC POLICIES MACROECONOMIC STABILITY MEAN VALUE MONETARY ECONOMICS NEGATIVE EFFECT NEGATIVE IMPACT NONPAYMENT 0 HYPOTHESIS OBSTACLES TO GROWTH OUTPUT PERFORMANCE MEASURES POLICY IMPLICATIONS POLICY RESEARCH PRIVATE SECTOR DEVELOPMENT PROPERTY RIGHTS PROPERTY RIGHTS PROTECTION REFORM EFFORTS RELATIVE IMPORTANCE SALES GROWTH SIGNIFICANT IMPACT SMALL FIRMS STANDARD DEVIATION SUB-SAHARAN AFRICA TAX TAXATION TRANSACTION TRANSITION COUNTRIES TRANSITION ECONOMIES TRINIDAD AND TOBAGO |
| spellingShingle |
ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCING ACCOUNTING BANK EQUITY BANK PAPERWORK BANK POLICY BIASES BINDING CONSTRAINT BINDING CONSTRAINTS BORROWING BUSINESS ENVIRONMENT BUSINESS ENVIRONMENTS CHECKS COLLATERAL COLLATERAL REQUIREMENTS COMMON LAW COMPETITORS CORRUPTION COUNTRY DUMMIES COUNTRY FIXED EFFECT COUNTRY FIXED EFFECTS COUNTRY LEVEL COUNTRY REGRESSIONS COUNTRY-LEVEL INDICATORS DEMAND FOR CAPITAL DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC IMPACT EMPLOYMENT ENTREPRENEURS EQUIPMENT ERROR TERM ESTIMATED COEFFICIENTS EXCHANGE RATE EXCHANGE RATES EXCLUSION EXPANSION EXPLANATORY VARIABLES EXPORTER EXTERNAL FINANCE EXTERNAL FINANCING FARMERS FINANCE ACCESS FINANCIAL DEVELOPMENT FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL OBSTACLE FINANCIAL OBSTACLES FINANCIAL POLICIES FINANCIAL SECTOR FINANCIAL SECTOR REFORM FINANCIAL SECTOR REFORMS FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING OBSTACLE FINANCING OBSTACLES FIRM GROWTH FIRM PERFORMANCE FIRM SIZE FIRM SIZES FOREIGN BANKS FOREIGN EXCHANGE FOREIGN FIRMS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GOVERNMENT POLICIES GROWTH LITERATURE GROWTH OPPORTUNITIES GROWTH RATE GROWTH RATES GROWTH REGRESSION GROWTH REGRESSIONS HIGH GROWTH HIGH GROWTH RATE HIGH INCOME COUNTRIES HIGH INFLATION HIGH INTEREST RATE HIGH INTEREST RATES INCOME INCOME GROUP INCOME GROUPS INCOME LEVEL INCOME LEVELS INDEPENDENT VARIABLES INDIVIDUAL COUNTRIES INDIVIDUAL FIRM INDIVIDUAL FIRMS INFLATION INFLATION RATES INFLATION TAX INSTITUTIONAL DEVELOPMENT INSTRUMENT INTEREST RATE INTEREST RATES INTERNATIONAL ACCOUNTING STANDARDS INVESTMENT CLIMATE JUDICIAL EFFICIENCY LACK OF ACCESS LATIN AMERICAN LEASING LEGAL CONSTRAINTS LEGAL ENFORCEMENT LEGAL SYSTEMS LICENSING LIMITED ACCESS LOAN LONG-TERM CAPITAL LONG-TERM LOANS MACROECONOMIC INSTABILITY MACROECONOMIC POLICIES MACROECONOMIC STABILITY MEAN VALUE MONETARY ECONOMICS NEGATIVE EFFECT NEGATIVE IMPACT NONPAYMENT 0 HYPOTHESIS OBSTACLES TO GROWTH OUTPUT PERFORMANCE MEASURES POLICY IMPLICATIONS POLICY RESEARCH PRIVATE SECTOR DEVELOPMENT PROPERTY RIGHTS PROPERTY RIGHTS PROTECTION REFORM EFFORTS RELATIVE IMPORTANCE SALES GROWTH SIGNIFICANT IMPACT SMALL FIRMS STANDARD DEVIATION SUB-SAHARAN AFRICA TAX TAXATION TRANSACTION TRANSITION COUNTRIES TRANSITION ECONOMIES TRINIDAD AND TOBAGO Ayyagari, Meghana Demirgüç-Kunt, Asli Maksimovic, Vojislav How Important Are Financing Constraints? The Role of Finance in the Business Environment |
| relation |
Policy Research Working Paper; No. 3820 |
| description |
What role does the business environment play in promoting and restraining firm growth? Recent literature points to a number of factors as obstacles to growth. Inefficient functioning of financial markets, inadequate security and enforcement of property rights, poor provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption and macroeconomic stability are all discussed without any comparative evidence on their ordering. In this paper, we use firm level survey data to present evidence on the relative importance of different features of the business environment. We find that although firms report many obstacles to growth, not all the obstacles are equally constraining. Some affect firm growth only indirectly through their influence on other obstacles, or not at all. Using Directed Acyclic Graph (DAG) methodology as well as regressions, we find that only obstacles related to Finance, Crime and Policy Instability directly affect the growth rate of firms. Robustness tests further show that the Finance result is the most robust of the three. These results have important policy implications for the priority of reform efforts. Our results show that maintaining policy stability, keeping crime under control, and undertaking financial sector reforms to relax financing constraints are likely to be the most effective routes to promote firm growth. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Ayyagari, Meghana Demirgüç-Kunt, Asli Maksimovic, Vojislav |
| author_facet |
Ayyagari, Meghana Demirgüç-Kunt, Asli Maksimovic, Vojislav |
| author_sort |
Ayyagari, Meghana |
| title |
How Important Are Financing Constraints? The Role of Finance in the Business Environment |
| title_short |
How Important Are Financing Constraints? The Role of Finance in the Business Environment |
| title_full |
How Important Are Financing Constraints? The Role of Finance in the Business Environment |
| title_fullStr |
How Important Are Financing Constraints? The Role of Finance in the Business Environment |
| title_full_unstemmed |
How Important Are Financing Constraints? The Role of Finance in the Business Environment |
| title_sort |
how important are financing constraints? the role of finance in the business environment |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2006/01/9836091/important-financing-constraints-role-finance-business-environment http://hdl.handle.net/10986/8998 |
| _version_ |
1764406892905365504 |
| spelling |
okr-10986-89982021-04-23T14:02:42Z How Important Are Financing Constraints? The Role of Finance in the Business Environment Ayyagari, Meghana Demirgüç-Kunt, Asli Maksimovic, Vojislav ABSOLUTE VALUE ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCING ACCOUNTING BANK EQUITY BANK PAPERWORK BANK POLICY BIASES BINDING CONSTRAINT BINDING CONSTRAINTS BORROWING BUSINESS ENVIRONMENT BUSINESS ENVIRONMENTS CHECKS COLLATERAL COLLATERAL REQUIREMENTS COMMON LAW COMPETITORS CORRUPTION COUNTRY DUMMIES COUNTRY FIXED EFFECT COUNTRY FIXED EFFECTS COUNTRY LEVEL COUNTRY REGRESSIONS COUNTRY-LEVEL INDICATORS DEMAND FOR CAPITAL DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC IMPACT EMPLOYMENT ENTREPRENEURS EQUIPMENT ERROR TERM ESTIMATED COEFFICIENTS EXCHANGE RATE EXCHANGE RATES EXCLUSION EXPANSION EXPLANATORY VARIABLES EXPORTER EXTERNAL FINANCE EXTERNAL FINANCING FARMERS FINANCE ACCESS FINANCIAL DEVELOPMENT FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL OBSTACLE FINANCIAL OBSTACLES FINANCIAL POLICIES FINANCIAL SECTOR FINANCIAL SECTOR REFORM FINANCIAL SECTOR REFORMS FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCING OBSTACLE FINANCING OBSTACLES FIRM GROWTH FIRM PERFORMANCE FIRM SIZE FIRM SIZES FOREIGN BANKS FOREIGN EXCHANGE FOREIGN FIRMS FOREIGN OWNERSHIP GOVERNMENT OWNERSHIP GOVERNMENT POLICIES GROWTH LITERATURE GROWTH OPPORTUNITIES GROWTH RATE GROWTH RATES GROWTH REGRESSION GROWTH REGRESSIONS HIGH GROWTH HIGH GROWTH RATE HIGH INCOME COUNTRIES HIGH INFLATION HIGH INTEREST RATE HIGH INTEREST RATES INCOME INCOME GROUP INCOME GROUPS INCOME LEVEL INCOME LEVELS INDEPENDENT VARIABLES INDIVIDUAL COUNTRIES INDIVIDUAL FIRM INDIVIDUAL FIRMS INFLATION INFLATION RATES INFLATION TAX INSTITUTIONAL DEVELOPMENT INSTRUMENT INTEREST RATE INTEREST RATES INTERNATIONAL ACCOUNTING STANDARDS INVESTMENT CLIMATE JUDICIAL EFFICIENCY LACK OF ACCESS LATIN AMERICAN LEASING LEGAL CONSTRAINTS LEGAL ENFORCEMENT LEGAL SYSTEMS LICENSING LIMITED ACCESS LOAN LONG-TERM CAPITAL LONG-TERM LOANS MACROECONOMIC INSTABILITY MACROECONOMIC POLICIES MACROECONOMIC STABILITY MEAN VALUE MONETARY ECONOMICS NEGATIVE EFFECT NEGATIVE IMPACT NONPAYMENT 0 HYPOTHESIS OBSTACLES TO GROWTH OUTPUT PERFORMANCE MEASURES POLICY IMPLICATIONS POLICY RESEARCH PRIVATE SECTOR DEVELOPMENT PROPERTY RIGHTS PROPERTY RIGHTS PROTECTION REFORM EFFORTS RELATIVE IMPORTANCE SALES GROWTH SIGNIFICANT IMPACT SMALL FIRMS STANDARD DEVIATION SUB-SAHARAN AFRICA TAX TAXATION TRANSACTION TRANSITION COUNTRIES TRANSITION ECONOMIES TRINIDAD AND TOBAGO What role does the business environment play in promoting and restraining firm growth? Recent literature points to a number of factors as obstacles to growth. Inefficient functioning of financial markets, inadequate security and enforcement of property rights, poor provision of infrastructure, inefficient regulation and taxation, and broader governance features such as corruption and macroeconomic stability are all discussed without any comparative evidence on their ordering. In this paper, we use firm level survey data to present evidence on the relative importance of different features of the business environment. We find that although firms report many obstacles to growth, not all the obstacles are equally constraining. Some affect firm growth only indirectly through their influence on other obstacles, or not at all. Using Directed Acyclic Graph (DAG) methodology as well as regressions, we find that only obstacles related to Finance, Crime and Policy Instability directly affect the growth rate of firms. Robustness tests further show that the Finance result is the most robust of the three. These results have important policy implications for the priority of reform efforts. Our results show that maintaining policy stability, keeping crime under control, and undertaking financial sector reforms to relax financing constraints are likely to be the most effective routes to promote firm growth. 2012-06-26T13:48:13Z 2012-06-26T13:48:13Z 2006-01 http://documents.worldbank.org/curated/en/2006/01/9836091/important-financing-constraints-role-finance-business-environment http://hdl.handle.net/10986/8998 English en_US Policy Research Working Paper; No. 3820 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |