Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263656 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15440
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
finance
informality
competition
expectations
MENA countries
JEL: 
O16
E26
D84
D22
Document Type: 
Working Paper

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