Democracy and access to finance in developing countries

Omar Farooq and Khondker Aktaruzzaman

Review of Behavioral Finance, 2022, vol. 15, issue 6, 947-969

Abstract: Purpose - The aim of this paper is to document the effect of democracy on the financing constraints faced by private firms. Design/methodology/approach - This paper uses the data from the World Bank's Enterprise Surveys to test the arguments presented in this paper in a large sample of private firms from 92 developing countries. Findings - The results show that firms headquartered in more democratic countries have better access to finance than firms headquartered in less democratic countries. The findings are robust to the comprehensive inclusion of relevant controls and to a number of sensitivity tests. The authors' findings highlight an important channel through which democracy can affect the business environment of a country. Originality/value - The authors believe that this paper is an initial attempt to document the effect of democracy on the financing constraints faced by private firms.

Keywords: Democratic institutions; Access to finance; Financing constraints; Developing countries; World Bank's enterprise survey (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:rbfpps:rbf-07-2022-0168

DOI: 10.1108/RBF-07-2022-0168

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