Finance, Informal Competition, and Expectations: A Firm-Level Analysis

Emanuele Brancati, Michele Di Maio and Aminur Rahman ()
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Aminur Rahman: World Bank

No 15440, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper documents the link between finance and informal competition. Using longitudinal firm-level data, we show that formal firms that are more exposed to the competition of informal firms are less likely to apply for a bank loan. This result is not due to sample selection, omitted variable bias, or reverse causality, and it is robust to different econometric specifications, including the use of an IV strategy. As for the mechanism explaining our result, we show that firms more exposed to informal competition have worse expectations on future sales growth, which in turn are associated with a lower probability of loan application. Finally, we provide suggestive evidence excluding supply-side mechanisms that may explain heterogeneities in firms' access to finance.

Keywords: MENA countries; expectations; competition; informality; finance (search for similar items in EconPapers)
JEL-codes: D22 D84 E26 O16 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2022-07
New Economics Papers: this item is included in nep-dev and nep-iue
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Published - published in: World Development, 2024, 173, 106408

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Journal Article: Finance, informal competition, and expectations: A firm-level analysis (2024)
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