We study how institutions influence start-up characteristics of firms and how these characteristics predict entrants' growth trajectories over the early firm life cycle. Using census data from India, we find that greater financial development is associated with higher entry rates and smaller-sized entrants. Following entry, however, large and small entrants grow at the same rates across states with different institutions or industries with differing reliance on external finance. The impact of access to finance is greater on start-up size and entry rates than on the subsequent growth of firms during the early life cycle.

[The fast growth of Chinese private sector firms is taken as evidence that informal finance can facilitate firm growth better than formal banks in developing countries. We examine firm financing patterns and growth using a database of twenty-four hundred Chinese firms. While a relatively small percentage of firms utilize bank loans, bank financing is associated with faster growth whereas informal financing is not. Controlling for selection, we find that firms with bank financing grow faster than similar firms without bank financing and that our results are not driven by bank corruption or the selection of firms that have accessed the formal financial system. Our findings question whether reputation and relationship-based financing are responsible for the performance of the fastest-growing firms in developing countries.]

[We examine how well several institutional- and firm-level factors explain firms' perceptions of property rights protection. The institutional theories we investigate account for approximately 50% of the country-level variation, indicating that current research addresses first-order factors. Firm-level characteristics, such as legal organization and ownership structure, are comparable with institutional factors in explaining variations in property rights protection. A country's legal origin predicts property rights variation better than its religion, ethnic fractionalization, or natural endowments. However, these results are driven by the inclusion of former Socialist economies in the sample. When we exclude the former Socialist economies, legal origin explains considerably less than ethnic fractionalization does.]

We document a political cycle in the investment decisions of state-owned enterprises (SOEs) by using the constitutionally mandated election schedule in India as a source of exogenous variation in politicians’ incentive to cater to voters. Using a project-level investment database, we find that SOEs announce more capital expenditure projects in election years, especially in infrastructure, and in districts with close elections, high-ranking politicians, and left-wing incumbents. SOE projects in election years have negative announcement returns, suggesting a loss in shareholder value. These patterns are not seen in nongovernment firms or in off-election years.

This paper examines whether controlling shareholders of foreign firms use a US cross-listing to facilitate changes in ownership and control. Prior to listing, about three quarters of the firms in our sample have a controlling shareholder. After listing, about half of the controlling shareholders’ voting rights decrease, with an average decrease of 24% points that differs significantly from that of the controlling shareholders of benchmark firms that do not cross-list. Large decreases in voting rights are associated with controlling shareholder characteristics, domestic market constraints, and better stock market performance and liquidity. In addition, there is control change in 22% of the firms. Controlling shareholders are more likely to sell control, and are more likely to do so to a foreign buyer, than controlling shareholders of benchmark firms. The results suggest that controlling shareholders who want to sell shares or their control stake can use a US cross-listing to decrease the cost of transferring ownership.

Using state-level data from India over the period 1983–2005, this paper shows a strong negative relationship between financial depth (as measured by credit volume) and rural poverty. Instrumental variable regressions suggest that this relationship is robust to endogeneity biases. Furthermore, financial deepening has a bigger impact on rural poverty alleviation than outreach (as measured by branch penetration). We find suggestive evidence that financial deepening reduced poverty rates especially among self-employed in the rural areas and also supported an inter-state migration trend from rural areas into the tertiary sector in urban areas, consistent with financial deepening being driven by credit to the tertiary sector. Our findings suggest that financial deepening contributed to poverty alleviation in rural areas by fostering entrepreneurship and inducing geographic-sectoral migration.

We study firm recoveries from systemic sudden stops in developing countries, where firms' cash flows suffer exogenous shocks. Contrary to macro studies suggesting that output recovery precedes that of the financial sector, firm-level data shows that only in less than a third of firms, operating cash flows recover without a recovery in external credit, and even these firms have access to other sources of cash. Specifically, firms with high prior short-term debt exposure do experience a sharp reduction in short-term credit but increase operating cash flows during a crisis. Firms with high prior cash holdings experience negative cash flows and deplete their cash holdings. Thus, firms' financial prepositioning predicts recovery in cash flows and is consistent with trade-off theories of capital structure and with precautionary motives for cash holdings. We find no support for the maturity mismatch hypothesis, which predicts that firms with high short-term debt should have harder recoveries post crisis.

Innovating firms pay more bribes than noninnovators across 25,000 firms in 57 countries. The difference is larger in countries with more bureaucratic regulation and weaker governance. Innovators that pay bribes do not receive better services and do not have greater propensity to engage in other illegal activities such as tax evasion. Thus, innovators are more likely to be victims of corruption than perpetrators. Our findings point to the challenges facing entrepreneurs in developing countries and are consistent with the view that rent seeking by government officials unlike private criminal activity is more likely to target innovators.

We investigate the firm characteristics associated with innovation in over 19,000 firms across 47 developing economies. While existing finance literature on innovation is limited to large public firms in developed markets such as the United States, our database includes public and private firms, and small and medium-sized enterprises. We define innovation broadly to include introduction of new products and technologies, knowledge transfers, and new production processes. We find that access to external financing is associated with greater firm innovation. Further, having highly educated managers, ownership by families, individuals, or managers, and exposure to foreign competition is associated with greater firm innovation.

This paper investigates the effect of access to finance on job growth in over 780,000 firms across twenty-two developing countries. Using the introduction of credit bureaus as an exogenous shock to the supply of credit, the paper finds that increased access to finance results in higher employment growth, especially among micro, small, and medium enterprises. The results are robust to using firm-fixed effects, industry measures of external finance dependence, and propensity score matching. Our findings have implications for policy interventions targeted to produce job growth.