Regulation of Entry and the Distortion of Industrial Organization

We study the distortions to industrial organization caused by entry regulation. We take advantage of heterogeneity across industries in their natural barriers and growth opportunities to examine whether some industries are differentially affected by country-level entry regulation. In industries with high natural entry barriers, entry regulation has little impact on the quantity and average size of firms in an industry. By contrast, in industries with low natural entry barriers, countries with high entry regulation have relatively few, large firms. We find no relation between natural entry barriers and overall industry share of manufacturing, as a function of entry regulation. Utilizing firm-level data, we show that operating margins are relatively high in low barrier industries in high entry regulation countries. Finally, we analyze the ability of industries to take advantage of shocks to growth opportunities. In countries with high entry regulation, industries respond to growth opportunities through the expansion of existing firms, while in countries with low entry regulation, the response is through the creation of new firms; the total sectoral response is invariant to the level of regulation. Our results suggest that regulation distorts the structure of industry, promoting industry concentration, but does not have measurable effects on intersectoral allocations.

A firm-level analysis of small and medium size enterprise financing in Poland

The authors test competing theories of capital structure choices using firm-level data on firm borrowings. The majority of firms in the dataset are privately owned, young, micro or small and medium enterprise (SME) firms concentrated in the service sector. In general, the financing pattern of firms is low leverage ratios and, in particular, low levels of intermediated financing and long-term financing. Average firm growth rates decreased during the five years of the sample period. Average profitability growth ratios are also negative across age and sectors and large firms have the highest negative profit growth rates. Statistical tests find a positive firm size effect on financial intermediation. Larger firms have higher leverage ratios (both short term and long term), including higher use of trade credit. There is also a negative influence of profitability on leverage ratios (more profitable firms use less external financing), which supports the"pecking order"theory that in environments with greater asymmetric information (such as weaker credit information) firms prefer to use internal or inter-firm financing. Finally, firms operating in a competitive environment have higher leverage ratios. For instance, young, small firms are the most active employment generators in the Polish economy. In particular, the authors find that although SMEs seem to be very active in creating jobs in recent years. This suggests that a new type of firm is emerging that is more market and profit-oriented. But at the same time, these firms appear to have financial constraints that impede their growth. Improvements in the business environment, such as better credit and registry information, could help promote growth in this sector.Small Scale Enterprise,Microfinance,Economic Theory&Research,Investment and Investment Climate,Financial Intermediation

Small and medium size enterprise financing in Eastern Europe

There is currently a large interest in understanding firms'access to finance, particularly in the financing of small- and medium-size enterprises (SMEs). But the financing patterns of SMEs across countries is not well understood. For example, little is known about the relative importance of equity, debt, and inter-firm financing for SMEs across countries. The authors use the Amadeus database, which includes financial information on over 97,000 private and publicly traded firms in 15 Eastern and Central European countries. The Amadeus database allows the authors the opportunity to provide a new analysis of the general financing patterns of private firms across a large sample of Eastern European countries. The summary statistics show that the size of the SME sector (as measured by the percentage of total employment) in Eastern European countries is smaller than in most developed economies. Although the authors find in almost every country in the sample a large number of SMEs as a percentage of total firms, the SMEs in Eastern Europe are generally small and hire few employees. However, SMEs seem to constitute the most dynamic sector of the Eastern European economies, relative to large firms. In general, the SME sector comprises relatively younger, more highly leveraged, and more profitable and faster growing firms. This suggests that a new type of firm is emerging in transition economies that is more market- and profit-oriented. But at the same time, these firms appear to have financial constraints that impede their access to long-term financing and ability to grow.Microfinance,Small and Medium Size Enterprises,Banks&Banking Reform,Small Scale Enterprise,Payment Systems&Infrastructure,Private Participation in Infrastructure,Small Scale Enterprise,Banks&Banking Reform,Economic Theory&Research,Microfinance

You Can’t Always Get What You Want: Trade-size Clustering and Quantity Choice in Liquidity”,

Abstract This paper examines whether investors care more about trading their exact quantity demands at some times than at others. Using a new data set of foreign-exchange transactions, I find that customers trade more precise quantities at quarter-end, as evidenced by less trade-size clustering. Customers trade more odd lots and fewer round lots, while the number of trades and total volume are not significantly changed. I also find that the price impact of order flow is greater when customers care more about trading precise quantities. This work sheds new light on trade-size clustering and offers a potential explanation for time-series and cross-sectional variations in common liquidity measures. JEL classification: D4; G12; G1

Regulation of entry and the distortion of industrial organization

We study the distortions of industrial organization caused by entry regulation. We take advantage of heterogeneity across industries in their natural barriers and growth opportunities to examine whether industries are differentially affected in countries according to entry regulation. First, we consider the effect of entry regulation on the (static) industry structure. We find that regulation has a greater impact in industries with lower natural barriers to entry, both on the number of firms and on the average size of firms. We find that the effect of entry regulation on industry share is not related to differences in natural barriers. Regarding industry dynamics, we find that in countries with high entry regulation, industries respond to growth opportunities through the expansion of existing firms, while in countries with low entry regulation, growth opportunities lead to the creation of new firms; finally, the total sectoral response is invariant to the level of regulation.regulation, regulation of entry

Trade Credit or Financial Credit? An International Study of the Choice and Its Influences

Trade credit financing has usually been assumed to be an expensive source of funds. Recent studies, however, suggested that it can be available at either low or no cost. Using an international panel of firms, we provide an empirical answer to this matter. We analyze the type of firms and financial environments that are associated with a relatively more intense use of financial credit and, consistent with the mainstream literature, we find that trade credit financing is chosen by firms that have more restricted access to financial credit. These results appear to be stronger for firms located in emerging markets