Financial and Legal Constraints to Firm Growth: Does Size Matter?

Abstract

Using a unique firm-level survey data base covering 54 promoting firm growth, particularly the development of countries, Beck, Demirgiu,-Kunt, and Maksimovic the small and medium enterprise sector. But the evidence investigate whether different financial, legal, and also shows that the intuitive descriptors of an "efficient" corruption issues that firms report as constraints actually legal system are not correlated with the components of affect their growth rates. The results show that the extent the general legal constraints that predict firm growth. to which these factors constrain a firm's growth depends This finding suggests that the mechanism by which the very much on its size and that it is consistently the legal systems affects firm performance is not well smallest firms that are most adversely affected by all understood. The authors' findings also provide evidence three constraints. Firm growth is more affected by that the corruption of bank officials constrains firm reported constraints in countries with underdeveloped growth. This "institutional failure" should be taken into financial and legal systems and higher corruption. So, account when modeling the monitoring role of financial policy measures to improve financial and legal institutions in overcoming market failures due to development and reduce corruption are well justified in informational asymmetries.This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to understand the link from the financial sector to economic development. Copies of the paper are available free from the World Bank,

Varieties of entrepreneurship: institutional drivers across entrepreneurial activity and country

“…Financial institutions are less likely to lend money to entrepreneurs because of the high risk associated with the endeavor and the lack of information (Berger and Udell 1998). Prior research suggests that the limited availability of financial resources has a significant negative impact on entrepreneurs regardless of the types of the entrepreneurial activity (Beck et al 2005). Based on these observations, we expect that greater availability of financial resources will induce all types of entrepreneurial activity:…”

Small and Medium Enterprises Across the Globe

“…While the business environment indicators refer to firms of all sizes, previous research has shown that financial and institutional underdevelopment constrains the growth and operation of small and medium size firms significantly more than that of large firms (Beck et al, 2005b). In this section, we first discuss different business environment indicators and how they might be related to the size of the SME sector and the informal economy and then employ regression based ANOVA to assess the extent to which cross-country variation in business environment can explain cross-country variation in the size of the SME sector and the informal economy.…”

SMEs, Growth, and Poverty: Cross-Country Evidence

“…Using a firm-level survey of small, medium-sized and large enterprises in 80 developing, developed and transition economies, Schiffer and Weder (2001) show that small firms face significantly higher growth obstacles in several areas, such as financing, taxation and regulation, exchange rate management, corruption, street crime, organized crime, and anti-competitive practices by other enterprises or the government. Using the same dataset, Beck, et al (2005) show that the relationship between financial, legal and corruption obstacles and firm growth is stronger for small firms and in countries with lower levels of financial and institutional development. These papers do not, however, show that countries with larger SME sectors enjoy greater economic success.…”