Credit-Constrained in Risky Activities? : The Determinants of Capital Stocks of Micro and Small Firms in Western Africa
Micro and Small Enterprises (MSEs) in developing countries are typically considered to be severely credit constrained. Additionally, high business risks may partly explain why capital stocks of MSEs remain low. This article analyzes the determinant...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/845991468340169255/Credit-constrained-in-risky-activities-the-determinants-of-capital-stocks-of-micro-and-small-firms-in-Western-Africa http://hdl.handle.net/10986/26786 |
| Summary: | Micro and Small Enterprises (MSEs) in
developing countries are typically considered to be severely
credit constrained. Additionally, high business risks may
partly explain why capital stocks of MSEs remain low. This
article analyzes the determinants of capital stocks of MSEs
in poor economies focusing on credit constraints and risk.
The analysis is based on a unique, albeit cross sectional
but backward looking, micro data set on MSEs covering the
economic capitals of seven West-African countries. The main
result is that capital market imperfections indeed seem to
explain an important part of the variation in capital stocks
in the early lifetime of MSEs. Furthermore, the analyses
show that risk plays a key role for capital accumulation.
Risk-averse individuals seem to adjust their initially low
capital stocks upwards when enterprises grow older. MSEs in
risky activities owned by wealthy individuals even seem to
over-invest when they start their business and adjust
capital stocks downwards subsequently. As other firms
simultaneously suffer from capital shortages, such behavior
may imply large inefficiencies. |
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