Credit Reporting and Financing Constraints

This paper combines firm level data from the World Bank Business Environment Survey (WBES) with data on private and public credit registries to investigate whether the presence of a credit registry in a country is associated with lower financing constraints and higher share of bank financing.

The study:

• Uses two alternative variables to measure financing constraints:
  • Answers given by firm managers to the question in the WBES survey about the financing constraints that firms face;
  • Use of bank credit by firms.
• Tests whether:
  • Perceptions of borrowers with regards to credit constraints are related to the presence of credit registries in their countries;
  • Public and private credit registries have the same or different effects on perceived financing constraints and whether they act as complements or substitutes.
• Controls for macro factors such as interest rate and economic growth as well as firm size, ownership, age and industry.

It finds that:

• The existence of private credit registries is associated with lower financing constraints and higher share of banking finance;
• Occurrence of public credit registries does not seem to have a significant effect on these perceived constraints;
• Small and medium firms tend to have a higher share of bank financing in countries where private registries exist;
• Stronger rule of law is associated with more effective private credit registries;
• The presence of a public credit registry benefits younger firms more than older firms.