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The impact of the business environment on young firm financing

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Author Info

  • Chavis, Larry W.
  • Klapper, Leora F.
  • Love, Inessa

Abstract

This paper uses a dataset of more than 70,000 firms in over 100 countries to systematically study the use of different financing sources for new and young firms, in comparison to mature firms. The authors find that in all countries younger firms rely less on bank financing and more on informal financing. However, they also find that younger firms use more bank finance in countries with stronger rule of law and better credit information, and that the reliance of young firms on informal finance decreases with the availability of credit information. Overall, the results suggest that improvements to the legal environment and availability of credit information are disproportionately beneficial for promoting access to formal finance by young firms.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5322.

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Date of creation: 01 May 2010
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Handle: RePEc:wbk:wbrwps:5322

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Related research

Keywords: Access to Finance; Debt Markets; Bankruptcy and Resolution of Financial Distress; Banks&Banking Reform; Financial Intermediation;

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References

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  1. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  2. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2008. "Formal versus informal finance : evidence from China," Policy Research Working Paper Series 4465, The World Bank.
  3. Robert Carpenter & Laura Rondi, 2000. "Italian Corporate Governance, Investment, and Finance," Empirica, Springer, vol. 27(4), pages 365-388, December.
  4. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
  5. Elisabeth Müller & Volker Zimmermann, 2009. "The importance of equity finance for R&D activity," Small Business Economics, Springer, vol. 33(3), pages 303-318, October.
  6. Gaudreault, Valerie & Baldwin, John R. & Gellatly, Guy, 2002. "Financing Innovation in New Small Firms: New Evidence from Canada," Analytical Studies Branch Research Paper Series 2002190e, Statistics Canada, Analytical Studies Branch.
  7. Beck, T.H.L. & Demirgüç-Kunt, A. & Maksimovic, V., 2005. "Financial and legal constraints to firm growth: Does firm size matter?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125505, Tilburg University.
  8. Leora Klapper, 2006. "Entrepreneurship," World Bank Other Operational Studies 11174, The World Bank.
  9. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
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Cited by:
  1. Franklin ALLEN & Elena CARLETTI & Jun 'QJ' QIAN & Patricio VALENZUELA, 2012. "Financial Intermediation, Markets, and Alternative Financial Sectors," Economics Working Papers ECO2012/11, European University Institute.

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