Assessing Firms' Financing Constraints in Brazil
Firm surveys often indicate that firms complain a lot about lack of access to financial services, but financing constraints are difficult to identify, given demand and supply considerations and with only surveys based on firms' perceptions. Sp...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/09/18321821/assessing-firms-financing-constraints-brazil http://hdl.handle.net/10986/16842 |
| Summary: | Firm surveys often indicate that firms
complain a lot about lack of access to financial services,
but financing constraints are difficult to identify, given
demand and supply considerations and with only surveys based
on firms' perceptions. Specifically, it is difficult to
separate demand for access to finance of viable firms with
good growth opportunities from that of firms that are not
creditworthy and should not deserve financing. In Brazil,
one of the main constraints to finance is related to the
high level of interest rates, which affects both bank
funding costs as well as bank intermediation spreads and, as
such, the cost of finance and hence the demand and supply of
bank financing. This paper analyzes a unique loan level data
set that covers almost a decade of monthly firm bank
information from credit registry information that is not
publicly available as well as two cross-sections of
Brazil's Investment Climate Assessment surveys in 2004
and 2008 that provide detailed information on firms'
micro characteristics as well as perceptions of credit. The
data allow identification of how firms'
characteristics, banks' characteristics, and macro
variables affect firms' demand for credit, banks'
supply of credit, and access to credit. The paper finds
first that access to finance for firms has improved over the
decade for small firms, reflecting the deepening of the
credit markets. However, access to credit depends strongly
on information availability captured in the positive
influence of collateral and credit history. Banks perceive
that it is less risky to lend to firms that the banks know
or that other banks know. Second, firms' loan demand is
inelastic to the interest rate at the individual loan
category level, possibly reflecting some screening and
pricing; however, when the loans are aggregated, the effect
of interest rates becomes significant and negative as
expected. Third, firms loan demand and loan supply are
affected by the availability of collateral and, in the case
of loan demand, longer maturity. Policy implications point
to the importance of reducing asymmetric information between
lenders and borrowers and on collateral to alleviate
financing constraints for small firms. |
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