What Determines Entrepreneurial Outcomes in Emerging Markets? The Role of Initial Conditions

83 Pages Posted: 20 Apr 2016

See all articles by Meghana Ayyagari

Meghana Ayyagari

George Washington University - School of Business

Asli Demirgüç-Kunt

World Bank

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: March 6, 2015

Abstract

Is it the institutions or firm characteristics at birth that shape startups and their early growth in developing countries? Using comprehensive data from the Indian Annual Survey of Industries this paper addresses this question by studying the early lifecycle of firms across diverse institutional environments of regions in India. It finds that the size and characteristics of a start-up at entry are persistent over the first eight years of a firm's life. However, given these initial conditions at entry, institutions do not have much explanatory power in determining growth. The comparative growth rates of large and small start-ups are not significantly different across states with different local institutions or industries with differing reliance on external finance or need for fixed capital. But institutions, particularly the availability of credit, do have an impact on the initial entry process. Access to external finance is associated with greater overall entry, and also smaller sized entry. The results do not appear to be driven by endogeneity of access to credit or sample selection. The results show that the channel through which institutions affect the relative outcomes of young firms is through the initial distribution of firm characteristics at entry rather than their effect on the performance of the firms post entry.

Keywords: Labor Markets, Labor Policies, Microfinance, Environmental Economics & Policies, Banks & Banking Reform

Suggested Citation

Ayyagari, Meghana and Demirgüç-Kunt, Asli and Maksimovic, Vojislav, What Determines Entrepreneurial Outcomes in Emerging Markets? The Role of Initial Conditions (March 6, 2015). World Bank Policy Research Working Paper No. 7207, Available at SSRN: https://ssrn.com/abstract=2574966

Meghana Ayyagari (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://scholar.rhsmith.umd.edu/vmax/home

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
127
Abstract Views
1,108
rank
255,592
PlumX Metrics