Grimm, MichaelLange, SimonLay, Jann2017-05-302017-05-302012-05https://hdl.handle.net/10986/26786Micro and Small Enterprises (MSEs) in developing countries are typically considered to be severely credit constrained. Additionally, high business risks may partly explain why capital stocks of MSEs remain low. This article analyzes the determinants of capital stocks of MSEs in poor economies focusing on credit constraints and risk. The analysis is based on a unique, albeit cross sectional but backward looking, micro data set on MSEs covering the economic capitals of seven West-African countries. The main result is that capital market imperfections indeed seem to explain an important part of the variation in capital stocks in the early lifetime of MSEs. Furthermore, the analyses show that risk plays a key role for capital accumulation. Risk-averse individuals seem to adjust their initially low capital stocks upwards when enterprises grow older. MSEs in risky activities owned by wealthy individuals even seem to over-invest when they start their business and adjust capital stocks downwards subsequently. As other firms simultaneously suffer from capital shortages, such behavior may imply large inefficiencies.en-USCC BY 3.0 IGOACCESS TO CAPITALACCESS TO CREDITACCESS TO FINANCEACCESS TO FORMAL CREDITACCOUNTSACCUMULATION RATEADVANCED ECONOMIESADVANCED ECONOMYAGRICULTURAL ECONOMICSBANK CREDITBANK POLICYBARRIERS TO ENTRYBIASESBORROWINGBUSINESS ACTIVITIESBUSINESS ACTIVITYBUSINESS ASSOCIATIONSBUSINESS ECONOMICSBUSINESS OWNERSBUSINESS RISKBUSINESS RISKSCAPACITY BUILDINGCAPITAL ACCUMULATIONCAPITAL CONSTRAINTCAPITAL CONSTRAINTSCAPITAL COSTCAPITAL COSTSCAPITAL INJECTIONCAPITAL MARKETCAPITAL MARKETSCAPITAL REQUIREMENTSCAPITAL RETURNSCAPITAL SHORTAGESCAPITAL STOCKCAPITAL STOCKSCHECKSCOLLATERALCONTRACTUAL OBLIGATIONSCOST OF CAPITALCREDIT CONSTRAINED FIRMSCREDIT CONSTRAINTCREDIT CONSTRAINTSCREDIT HISTORYCREDIT INSTITUTIONSCREDIT MARKETCREDIT MARKETSCREDIT RATIONINGDEGREES OF RISKDEMOGRAPHIC CHARACTERISTICSDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPMENT ECONOMICSDIVERSIFICATIONDUMMY VARIABLEDUMMY VARIABLESDURABLEDURABLE GOODSEARNINGSECONOMETRIC MODELSECONOMIC CONSTRAINTSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC POLICIESECONOMIC STATISTICSENDOWMENTSENTERPRISE PERFORMANCEENTREPRENEURENTREPRENEURIAL ACTIVITIESENTREPRENEURIAL ACTIVITYENTREPRENEURSENTRY BARRIERSEQUIPMENTEXCESSIVE RISKEXPECTED UTILITYEXPECTED VALUEEXPENDITUREEXPENDITURESEXTERNAL FINANCEFAMILY FINANCEFAMILY LOANSFARMERSFEMALE ENTREPRENEURSFINANCIAL MEANSFINANCIAL RESOURCESFINANCIAL SUPPORTFIXED COSTSFORMAL BANKSGDPGROUP OF FIRMSGROWTH THEORYHIGH INTEREST RATESHOLDINGHOUSEHOLD WEALTHHOUSEHOLDSHUMAN CAPITALINCOME GROWTHINFORMATION ASYMMETRIESINFORMATION ON ENTREPRENEURSINFORMATION ON INVESTMENTINSTRUMENTINSURANCEINSURANCE MARKETINSURANCE MARKETSINSURANCE PRODUCTSINTEREST RATEINTERNAL FINANCEINTERNAL FUNDSINVENTORIESINVENTORYINVESTINGINVESTMENT BEHAVIORJOB CREATIONLABOR FORCE SURVEYLABOR MARKETLABOR MARKETSLACK OF ACCESSLEVEL OF RISKLIQUID WEALTHLIQUIDITYLIQUIDITY CONSTRAINTLIQUIDITY CONSTRAINTSLIQUIDITY PREMIUMLIQUIDITY PROBLEMSLOANLOTTERYMARGINAL COSTMARGINAL PRODUCTMARGINAL UTILITYMARGINAL UTILITY OF CONSUMPTIONMARKET CONSTRAINTSMARKET ECONOMYMARKET FAILUREMARKET FAILURESMARKET INTEREST RATEMARKET INTEREST RATESMICRO DATAMICRO ENTERPRISESMICRO-CREDITMICRO-ENTERPRISEMICRO-FINANCEMICRO-FINANCE INSTITUTIONSMICROCREDITMICROENTERPRISESMIDDLE INCOME COUNTRIESMONEY LENDERSMONEYLENDERSMORAL HAZARDOPPORTUNITY COSTOPPORTUNITY COSTSPHYSICAL CAPITALPOLITICAL ECONOMYPORTFOLIOPRICE RISKPRICE UNCERTAINTYPRODUCTION FUNCTIONPRODUCTIVE INVESTMENTPROFITABILITYPURCHASING POWERPURCHASING POWER PARITYRATE OF RETURNRATES OF RETURNRECEIPTSREINVESTMENTRETAINED EARNINGSRISK AVERSIONRISK PERCEPTIONSRISK PREMIUMRISK-AVERSE INDIVIDUALSSAFE ASSETSAVINGSSELF-EMPLOYMENTSMALL BUSINESSSMALL ENTERPRISESSMALL-SCALE ENTREPRENEURSSOURCE OF CREDITSOURCES OF FINANCESTART-UPTAXTAXISTRADE SECTORTRADINGTRANSITION COUNTRYTRANSITION ECONOMYTRUST FUNDUNIONVALUE ADDEDWEALTHWorking PaperWorld Bank10.1596/26786