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Wealth, Credit Constraints and Small Firms’ Investment: Evidence from Brazil

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Abstract

We explore the effect of wealth on occupational choice to find out whether small firms in Brazil face credit constraint and how occupational choice relates to investments. Using an instrumental variable approach, we find evidence that occupational choice is, in fact, constrained by wealth and this constraint is related to investment decisions. Our main results show that the probability of investment increases by 0.45 when the individual is an employer, controlling by entrepreneurs characteristics and sector, suggesting that the constraints at the credit market may affect investment decisions of small firms in Brazil. The effect of being an employer on credit access is about 0.320, which supports the idea that employers have more access to credit than the self-employed.

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  • Chein, Flávia & Pinto, Cristine, 2020. "Wealth, Credit Constraints and Small Firms’ Investment: Evidence from Brazil," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 40(1), August.
    • Handle: RePEc:sbe:breart:v:40:y:2020:i:1:a:80462
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    1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    2. Vincenzo Quadrini, 1999. "The Importance Of Entrepreneurship For Wealth Concentration And Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
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