The Impact of the Business Environment on Young Firm Financing

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 re...

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Bibliographic Details
Main Authors:	Chavis, Larry W., Klapper, Leora F., Love, Inessa
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO BANK ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO FINANCING ACCESS TO FORMAL FINANCE ADVERSE SELECTION ASYMMETRIC INFORMATION AVAILABILITY OF BANK FINANCING AVAILABILITY OF CREDIT BANK CREDIT BANK FINANCING BANK POLICY BANKS BARRIERS TO GROWTH BORROWER BORROWING BRIBES CAPITAL STRUCTURE CHECKS COLLATERAL COMMERCIAL BORROWING CONTRACT ENFORCEMENT CORPORATE FINANCE CORPORATE FINANCING CORPORATE GOVERNANCE CORRUPTION CREDIT BUREAU CREDIT CARDS CREDIT CONTRACT CREDIT CONTRACTS CREDIT HISTORY CREDIT INFORMATION CREDIT SCORING CREDITOR CREDITOR RIGHTS CREDITORS CREDITWORTHINESS DEBT DEBT CAPACITY DEBT RECOVERY DEPENDENT DEVELOPING COUNTRIES DOMESTIC BANK EARNINGS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMICS EMPLOYMENT ENTERPRISE PERFORMANCE ENTREPRENEUR ENTREPRENEURIAL FINANCE ENTREPRENEURS ENTREPRENEURSHIP EQUITY CAPITAL EQUITY FINANCE EQUITY RATIO EXCLUSION EXPORTER EXPORTERS EXTERNAL FINANCING FINANCIAL CONSTRAINTS FINANCIAL CONTRACTS FINANCIAL COSTS FINANCIAL DEVELOPMENT FINANCIAL MARKETS FINANCIAL PRODUCTS FINANCIAL STATEMENTS FINANCIAL STUDIES FINANCIAL SYSTEMS FINANCING CONSTRAINTS FINANCING NEEDS FINANCING SOURCES FIRM FINANCING FIRM PERFORMANCE FOREIGN BANK FOREIGN BANKS FOREIGN OWNERSHIP FORMAL BANK FORMAL CREDIT GREATER ACCESS GROWTH OPPORTUNITIES INCOME GROUP INCOME GROUPS INCOME LEVEL INFORMAL CREDIT INFORMAL FINANCE INFORMAL FINANCING INFORMAL LENDERS INFORMATION ASYMMETRY INFORMATION INFRASTRUCTURE INFORMATION INFRASTRUCTURES INSTITUTIONAL ENVIRONMENT INTEREST RATE INTEREST RATES INTERNAL FINANCING INTERNAL FUNDS INTERNATIONAL BANK INVESTMENT FINANCING INVESTMENT OPPORTUNITIES LEGAL CONSTRAINTS LEGAL ENVIRONMENT LEGAL ENVIRONMENTS LEGAL SYSTEM LENDERS LENDING BEHAVIOR LIABILITY LINE OF CREDIT LIQUIDITY LIQUIDITY CONSTRAINTS LOAN LOAN CHARACTERISTICS LOAN SIZE LOCAL BANKS MATURITY MORAL HAZARD NEW BUSINESS OVERDRAFT OVERDRAFT FACILITY PERSONAL CREDIT POLITICAL ECONOMY PRIVATE CREDIT PRIVATE CREDIT BUREAU PRIVATIZATION PROFITABILITY PROPRIETORSHIP REGIONAL DUMMIES REPAYMENT RETAINED EARNINGS RETURN RISK MANAGEMENT RULE OF LAW SHAREHOLDER SMALL BUSINESSES SOURCES OF FINANCE START-UP TRADE CREDIT TRANSITION COUNTRIES UNLIMITED LIABILITY USE OF COLLATERAL VALUE OF COLLATERAL WORKING CAPITAL
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100527085728 http://hdl.handle.net/10986/3808

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Summary:	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.

The Impact of the Business Environment on Young Firm Financing

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