Reinvestment Decisions by Small Businesses in Emerging Economies
Posted: 16 Feb 2010
Date Written: February 1, 2010
We investigate the cross-country determinants of profit reinvestment decisions, using data compiled by the World Bank from around 7,000 businesses in 34 countries. We find that, compared to the security of property rights, it is a firm’s access to external financing that plays a significant role in a firm’s reinvestment decision in emerging economies. The extent of private ownership and the level of competition faced by firms are additional significant factors correlated with the reinvestment decision. Furthermore, we uncover a firm size effect in that the above factors driving firm reinvestment decision appears to impact small firms more than the relatively larger firms. Our findings complement, as well as build on, those from China and a few Eastern European countries.
Keywords: Reinvestment, investment, external financing, property rights, competition
JEL Classification: G11, G21, O57, O16
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