A New Lease on Life: Institutions, External Financing, and Business Growth

56 Pages Posted: 22 Mar 2007 Last revised: 2 Sep 2012

See all articles by Gregory W. Brown

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area

Larry W. Chavis

University of North Carolina (UNC) at Chapel Hill - Entrepreneurial Program

Leora F. Klapper

World Bank; World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: July 20, 2010

Abstract

This research utilizes data from the World Bank Investment Climate Survey to examine the use of external capital for almost 70,000 small and medium-sized firms in 103 developing and developed countries. Contrary to conventional wisdom, we find that most small firms in even the poorest countries have access to some type of external financing, however, the sources differ systematically by institutional and firm characteristics. For example, firms in poorer countries, with generally weaker institutions, use far less leasing for new investment and instead rely more on informal sources of capital such as money lenders and credit cards. We confirm that access to external capital is related to faster growth. Surprisingly, leasing is the only source of external finance related to growth in GDP and the manufacturing sector.

Keywords: External financing, leasing, trade credit

JEL Classification: F30, G31, O16, O57

Suggested Citation

Brown, Gregory W. and Chavis, Larry W. and Klapper, Leora F., A New Lease on Life: Institutions, External Financing, and Business Growth (July 20, 2010). AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=972385 or http://dx.doi.org/10.2139/ssrn.972385

Gregory W. Brown

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Larry W. Chavis (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Entrepreneurial Program ( email )

Chapel Hill, NC
United States
919-962-8215 (Phone)
919-962-7186 (Fax)

HOME PAGE: http://www.unc.edu/~chavisl

Leora F. Klapper

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-8738 (Phone)

HOME PAGE: http://econ.worldbank.org/staff/lklapper

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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