Reinvestment Decisions by Small Businesses in Emerging Economies

Posted: 16 Feb 2010

See all articles by Sugato Chakravarty

Sugato Chakravarty

Purdue University

Meifang Xiang

University of Wisconsin - Whitewater

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

Suggested Citation

Chakravarty, Sugato and Xiang, Meifang, Reinvestment Decisions by Small Businesses in Emerging Economies (February 1, 2010). Available at SSRN:

Sugato Chakravarty (Contact Author)

Purdue University ( email )

Consumer Sciences
1262 Matthews Hall Rm 214F
West Lafayette, IN 47906
United States
765-494-6427 (Phone)
765-494-0869 (Fax)


Meifang Xiang

University of Wisconsin - Whitewater ( email )

Whitewater, WI 53190
United States
262-472-4912 (Phone)
262-472-5499 (Fax)

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