Demand for Skilled Labor and Financial Constraints: Evidence from Uganda Thorsten Beck1 1 Cass

Mikael Homanen1

Business School

2 Tilburg

Burak Uras2

University

7th Development Economics Workshop, March 2016

Beck, Homanen, Uras (2016)

Labor & Financing Constraints

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Motivation Economic growth does not necessarily translate into a similar increase in employment For over a decade (2000-2012) Sub-Saharan African GDP has grown more than 4.5% annually These economies often have relatively low levels of unemployment, however, there still exists a lack of demand for skill In Uganda, many educated workers fail to be absorbed into the labor market - those with higher education do better when employed, but are more likely to be unemployed or to underutilise their skills. Access to credit remains difficult for small firms and start-ups, which may have adverse effects on firm employment constraints Beck, Homanen, Uras (2016)

Labor & Financing Constraints

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Research Questions

How do firm performance and financial constraints affect skilled labor demand? I

I

We define skilled labor as employees who are either trained or experienced in their specific positions Financial constraints are mainly measured by the firm’s access to bank loans

Does this relationship hold for other forms of labor? I

Other employee types include permanent, family, friends and casual employees

Beck, Homanen, Uras (2016)

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Main Findings We show that the interactions between firm performance and financial access are positive and significant for determining skilled labor employment These interactions do not have similar effects for other categorizations of labor such as family, friends or casual We address endogeneity concerns due to reverse causation by incorporating planned skilled hiring as the dependent variable Our results are robust for alternative financial access specifications and accounting for persistence in hiring behavior

Beck, Homanen, Uras (2016)

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Related Literature Financial Constraints and Investment Kaplan and Zingales (1997), Almeida, Campello and Weisbach (2004), Fazzari, Hubbard and Petersen (1988) Less financially constrained firms exhibit significantly greater investment cash flow sensitivities Propensity to save cash inflows is positive for constrained firms

These results have been established for developed economies, but so far have not been tested in an emerging market context with a human capital investment focus

Beck, Homanen, Uras (2016)

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Related Literature Financing Constraints in Developing Economies Banerjee and Duflo (2014), Zia (2008), De Mel et al. (2008), Ayyagari et al. (2008), Beck et al. (2006) and Beck et al. (2008) These papers study the effects of firm financing constraints on sales, performance and growth

Financing Constraints and Job Creation Pagano and Pica (2012), Beck et al. (2010), Campello et al. (2010), Gin´e and Townsend (2004), Popov (2015) and Benito and Hernando (2007) Studies often find a positive and significant relationship between financial development and job creation

Labor, Leverage and Wage Benmelech et al. (2011), Lang et al. (1996), Cantor (1990), Sharpe (1994), Berk et al. (2010), Chemmanur et al. (2013), Akyol et al. (2015), Bertray and Uras (2015), Monacelli et al. (2011), Carroll et al. (2000) and more Beck, Homanen, asd moreUras (2016)

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Data

Survey collected in 2013, Uganda Sample: 1839 firms, mainly small businesses Questions covering background, sales, employment, financials, markets, infrastructure, technology and innovation Firms come from 5 regions, 79 Districts, and over 16 Sectors

Beck, Homanen, Uras (2016)

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Table: Sector and Region Composition REGION SECTOR

NORTHERN

EASTERN

WESTERN

CENTRAL

KAMPALA

ACCOMODATION AGRICULTURE CONSTRUCTION EDUCATION & HEALTH FINANCIAL FOOD PROCESSING INFORMATION & COMMUNICATION MINING OTHER MANUFACTURING REAL ESTATE RECREATION & PERSONAL TRADING TRANSPORT, UTILITIES & STORAGE Total

No. 26 3 4 31 18 18 10 1 27 1 13 14 7 173

No. 22 48 6 33 8 39 16 5 12 0 24 9 34 256

No. 32 50 12 49 84 27 42 5 47 6 40 24 13 431

No. 43 178 7 96 11 43 22 17 59 34 71 38 25 644

No. 17 22 9 29 5 21 26 7 24 40 42 65 28 335

Col % 15.0 1.7 2.3 17.9 10.4 10.4 5.8 0.6 15.6 0.6 7.5 8.1 4.0 100.0

Col % 8.6 18.8 2.3 12.9 3.1 15.2 6.3 2.0 4.7 0.0 9.4 3.5 13.3 100.0

Col % 7.4 11.6 2.8 11.4 19.5 6.3 9.7 1.2 10.9 1.4 9.3 5.6 3.0 100.0

Col % 6.7 27.6 1.1 14.9 1.7 6.7 3.4 2.6 9.2 5.3 11.0 5.9 3.9 100.0

Col % 5.1 6.6 2.7 8.7 1.5 6.3 7.8 2.1 7.2 11.9 12.5 19.4 8.4 100.0

Total No. 140 301 38 238 126 148 116 35 169 81 190 150 107 1839

Col % 7.6 16.4 2.1 12.9 6.9 8.0 6.3 1.9 9.2 4.4 10.3 8.2 5.8 100.0

Note: We drop all financial firms from the empirical analysis

Beck, Homanen, Uras (2016)

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Main Variables Employees are split into 5 separate categories 1

Trained: formal training appropriate for their particular occupation

2

Experienced: work experience for at least two consecutive years in this particular occupation

3

Permanent: worked in the firm on a daily basis for at least 3 consecutive months

4

Casual: part time workers

5

Family: family, relatives or friends

Firms are split into 3 subsamples based on financial access 1 2 3

Firms who Applied for a Loan and Got a Loan Firms who Cannot Get a Loan 1 Firms who Did Not Apply for a Loan

1

These include firms who applied for a loan and were rejected and firms who did not apply for a loan, but indicate they need loan services in their business Beck, Homanen, Uras (2016)

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Methodology Standard regression Employeeik = α0 + βP erf ormancei + γ1 P erf ormancei ∗ AppliedandGotLoani + γ2 P erf ormancei ∗ CannotGetaLoani + λXi + i

(1)

Extensive: Dummy for whether firm hired - OLS Intensive: Realized quantity hired by the firm - Tobit k = (i)T rained (ii)Experienced (iii)P ermanent (iv)Casual (v)F amily

|

{z

High Skilled

}|

{z

”Other” Categorizations

}

Wald-Tests: testing for significance across subsamples H0 = γ1 = γ2 = 0 Beck, Homanen, Uras (2016)

Labor & Financing Constraints

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Variables

Firm Level Controls 1

Performance: Measured by Profit and Sales

2

Invested Capital Education of the Owner Business Age

3 4

5 6

Sector Fixed Effects Region Fixed Effects

Beck, Homanen, Uras (2016)

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Table: Summary Statistics (1) N

(2) mean

(3) sd

(4) min

(5) max

(6) p25

(7) p50

(8) p75

1,732 1,701 1,696 1,704 1,694

0.0918 0.0388 0.0218 0.0534 0.0549

0.289 0.193 0.146 0.225 0.228

0 0 0 0 0

1 1 1 1 1

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

Trained Experienced Permanent Casual Family

1,704 1,694 1,732 1,701 1,696

0.256 0.231 0.430 0.156 0.0619

1.933 1.427 2.495 1.083 0.692

0 0 0 0 0

54 25 54 20 17

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

DPlanned Trained DPlanned Experienced Planned Trained Planned Experienced

1,733 1,723 287 277

0.0912 0.105 1.289 1.466

0.288 0.307 1.852 2.217

0 0 0 0

1 1 20 30

0 0 0 0

0 0 1 1

0 0 2 2

DProfit DSales

1,828 1,606

-0.0350 -0.0199

0.796 0.880

-1 -1

1 1

-1 -1

0 0

1 1

Dummy Outstanding Loan Applied for Loan Applied and got a Loan Applied and was rejected a Loan Cannot Get Loan

1,839 1,839 1,839 1,839 1,839

0.111 0.407 0.105 0.302 0.625

0.314 0.491 0.307 0.459 0.484

0 0 0 0 0

1 1 1 1 1

0 0 0 0 0

0 0 0 0 1

0 1 0 1 1

Invested Capital Business Age New Innovative Product Low Education Medium Education High Education

1,603 1,812 1,839 1,839 1,839 1,839

8.961e+06 10.02 0.259 0.182 0.275 0.520

5.794e+07 7.678 0.438 0.386 0.447 0.500

0 1 0 0 0 0

1.010e+09 70 1 1 1 1

0 5 0 0 0 0

0 8 0 0 0 1

1.500e+06 12 1 0 1 1

VARIABLES DHire DHire DHire DHire DHire Hire Hire Hire Hire Hire

Permanent Casual Family Trained Experienced

Beck, Homanen, Uras (2016)

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Extensive Margin: Hiring Skilled Employees (1) DHire Trained

VARIABLES Profit Increased* Applied and got a Loan Profit Increased* Cannot Get Loan

0.002 (0.008)

DSales

Cannot Get Loan

Observations R-squared Firm Controls Sector FE Region FE Wald Test Prob > F-val

Beck, Homanen, Uras (2016)

(4) DHire Experienced

0.149** (0.064) 0.079*** (0.023) 0.103* (0.055) 0.056*** (0.022)

Sales Increased* Cannot Get Loan

Applied and got a Loan

(3) DHire Experienced

0.124** (0.060) 0.059*** (0.022)

Sales Increased* Applied and got a Loan

DProfit

(2) DHire Trained

0.119** (0.059) 0.069*** (0.023) -0.009 (0.009)

-0.005 (0.018) 0.018 (0.011)

0.003 (0.009) -0.005 (0.020) 0.018 (0.012)

0.003 (0.022) 0.005 (0.012)

-0.007 (0.010) 0.005 (0.026) 0.005 (0.015)

1,376 0.096 Yes Yes Yes 5.114 0.00613

1,246 0.103 Yes Yes Yes 4.565 0.0106

1,369 0.082 Yes Yes Yes 8.039 0.000338

1,239 0.083 Yes Yes Yes 5.822 0.00305

Labor & Financing Constraints

Tilburg University

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Intensive Margin: Hiring Skilled Employees (1) Hire Trained

VARIABLES Profit Increased* Applied and got a Loan Profit Increased* Cannot Get Loan

1.122 (1.522)

DSales

Cannot Get Loan

Observations Firm Controls Sector FE Region FE Wald Test Prob > F-val

Beck, Homanen, Uras (2016)

(4) Hire Experienced

7.157** (3.488) 6.274** (2.638) 7.505 (5.259) 5.193 (3.230)

Sales Increased* Cannot Get Loan

Applied and got a Loan

(3) Hire Experienced

8.043 (5.062) 4.629 (3.083)

Sales Increased* Applied and got a Loan

DProfit

(2) Hire Trained

6.444* (3.622) 6.111** (2.738) -0.736 (1.301)

-1.289 (4.103) 3.252 (2.488)

0.850 (1.519) -1.488 (4.261) 2.382 (2.586)

0.445 (2.424) 1.136 (1.784)

-0.914 (1.292) 0.352 (2.554) 0.668 (1.889)

1,383 Yes Yes Yes 1.649 0.193

1,253 Yes Yes Yes 1.530 0.217

1,376 Yes Yes Yes 3.259 0.0387

1,246 Yes Yes Yes 2.695 0.0680

Labor & Financing Constraints

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Extensive & Intensive Margin: Placebo Test Panel A: Extensive Margin (1) (2) DHire Permanent DHire Permanent

VARIABLES Profit Increased* Applied and got a Loan

0.103 (0.066) 0.098*** (0.030)

Profit Increased* Cannot Get Loan Sales Increased* Applied and got a Loan

Observations R-squared Firm Controls Sector FE Region FE Wald Test Prob > F-val

1,396 0.098 Yes Yes Yes 5.772 0.00319

0.015 (0.044) 0.040* (0.021)

1,265 0.112 Yes Yes Yes 6.968 0.000978

Profit Increased* Applied and got a Loan Profit Increased* Cannot Get Loan

2.625 (3.747) 5.247** (2.255)

Sales Increased* Applied and got a Loan

1,396 Yes Yes Yes 2.720 0.0662

0.013 (0.043) 0.012 (0.015)

1,240 0.036 Yes Yes Yes 0.633 0.531

1,370 0.046 Yes Yes Yes 1.186 0.306

(4) Hire Casual

(5) Hire Family

2.138*** (0.583) 4.760*** (0.461)

1,265 Yes Yes Yes 4.216 0.0150

(6) DHire Family

0.029 (0.045) 0.021 (0.014)

1,371 0.034 Yes Yes Yes 1.790 0.167

1.780 (4.017) 6.798*** (2.391)

Sales Increased* Cannot Get Loan

(5) DHire Family

-0.006 (0.043) 0.021 (0.021)

Panel B: Intensive Margin (1) (2) (3) Hire Permanent Hire Permanent Hire Casual

VARIABLES

Beck, Homanen, Uras (2016)

(4) DHire Casual

0.073 (0.062) 0.109*** (0.029)

Sales Increased* Cannot Get Loan

Observations Firm Controls Sector FE Region FE Wald Test Prob > F-val

(3) DHire Casual

1,239 0.048 Yes Yes Yes 0.307 0.736

(6) Hire Family

1.870*** (0.481) 2.653*** (0.371) 0.204 (0.574) 2.801*** (0.455)

1,371 Yes Yes Yes 53.40 0

Labor & Financing Constraints

1,240 Yes Yes Yes 21.09 9.86e-10

0.213 (0.484) 1.194*** (0.373) 1,370 Yes Yes Yes 26.54 0

1,239 Yes Yes Yes 5.361 0.00481

Tilburg University

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Robustness Tests

1

Incorporate Planned Hiring as our dependent variable I

2

Redefine our financial access subsamples I

3

We use this to account for the potential reverse causality of our performance and financial access variables

We separate firms in the Cannot Get Loan group

Alternative estimator for extensive margin regressions I

We run a Probit model for the skilled hiring regressions

Beck, Homanen, Uras (2016)

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Extensive Margin: Planned Skilled Hiring (1) DPlan Trained

VARIABLES Profit Increased* Applied and got a Loan Profit Increased* Cannot Get Loan

0.231*** (0.079) 0.045 (0.029)

Sales Increased* Applied and got a Loan

Cannot Get Loan

Observations R-squared Firm Controls Sector FE Region FE Wald Test Prob > F-val

(4) DPlan Experienced

0.317*** (0.082) 0.077** (0.032)

-0.013 (0.012)

DSales Applied and got a Loan

(3) DPlan Experienced

0.254*** (0.079) 0.015 (0.032)

Sales Increased* Cannot Get Loan DProfit

(2) DPlan Trained

0.340*** (0.080) 0.032 (0.035) -0.023* (0.013)

0.051 (0.032) 0.025 (0.018)

-0.008 (0.013) 0.046 (0.035) 0.040* (0.023)

0.015 (0.030) 0.050** (0.020)

-0.009 (0.014) -0.001 (0.032) 0.067*** (0.024)

1,387 0.174 Yes Yes Yes 4.867 0.00783

1,237 0.185 Yes Yes Yes 5.208 0.00559

1,380 0.157 Yes Yes Yes 9.210 0.000107

1,231 0.164 Yes Yes Yes 9.083 0.000122

Results hold for (i) alternative conversions of missing values (ii) continuous dependent variables and (iii) controlling for hiring persistence, i.e. realized hiring Beck, Homanen, Uras (2016)

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Extensive Margin: Alternative Financial Access Variables (1) DHire Trained

VARIABLES Profit Increased* Applied and got a Loan Profit Increased* Applied and was Rejected a Loan Profit Increased* Did not Apply but Needs Loan Service

(3) DHire Experienced

0.123** (0.060) 0.035 (0.026) 0.086*** (0.033)

Sales Increased* Applied and got a Loan

Sales Increased* Did not Apply but Needs Loan Service 0.002 (0.008)

DSales

(4) DHire Experienced

0.149** (0.064) 0.069** (0.029) 0.091*** (0.032) 0.103* (0.055) 0.042 (0.026) 0.075** (0.032)

Sales Increased* Applied and was Rejected a Loan

DProfit

(2) DHire Trained

0.119** (0.059) 0.072** (0.028) 0.068** (0.032) -0.009 (0.009)

-0.005 (0.018) 0.016 (0.013) 0.020 (0.013)

0.003 (0.009) -0.005 (0.020) 0.011 (0.014) 0.025* (0.014)

0.003 (0.022) 0.006 (0.015) 0.004 (0.014)

-0.007 (0.010) 0.005 (0.026) -0.001 (0.016) 0.011 (0.017)

Observations R-squared Firm Controls Industry FE Region FE Wald Test Prob > F-val Test12 F-val Test13 F-val Test23 F-val

1,376 0.099 Yes Yes Yes 3.682 0.0117 0.0659 0.00571 0.0206

1,246 0.106 Yes Yes Yes 3.180 0.0233 0.0670 0.0169 0.0292

1,369 0.082 Yes Yes Yes 5.379 0.00111 0.00636 0.00174 0.00219

1,239 0.084 Yes Yes Yes 3.964 0.00795 0.00971 0.0206 0.00924

Beck, Homanen, Uras (2016)

Labor & Financing Constraints

Applied and got a Loan Applied and was rejected a Loan Did not apply for Loan but Needs Loan Services

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Extensive Margin Probit Regression: Hiring Skilled Employees (1) DHire Trained

VARIABLES Profit Increased* Applied and got a Loan Profit Increased* Cannot Get Loan

0.045 (0.138)

DSales

Cannot Get Loan

Observations Firm Controls Sector FE Region FE Wald Test Prob > Chi2

Beck, Homanen, Uras (2016)

(4) DHire Experienced

1.015** (0.398) 0.759*** (0.273) 0.861* (0.460) 0.517* (0.272)

Sales Increased* Cannot Get Loan

Applied and got a Loan

(3) DHire Experienced

0.910** (0.437) 0.454* (0.265)

Sales Increased* Applied and got a Loan

DProfit

(2) DHire Trained

0.907** (0.413) 0.730** (0.286) -0.140 (0.144)

-0.043 (0.322) 0.340 (0.221)

0.029 (0.144) -0.057 (0.338) 0.273 (0.221)

0.011 (0.272) 0.037 (0.191)

-0.137 (0.145) 0.002 (0.292) -0.013 (0.205)

1,376 Yes Yes Yes 5.179 0.0750

1,246 Yes Yes Yes 4.839 0.0890

1,369 Yes Yes Yes 9.619 0.00815

1,239 Yes Yes Yes 7.602 0.0224

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Conclusion We show that positive firm performance and higher levels of financial access are associated with higher levels of skilled labor employment These effects do not persist for other categorizations of employment such as family, friends or casual Results show that firms also plan to hire more skilled employees when they have more financial access and higher performance

Policy implications: Fostering financial access is important and we provide additional evidence on the benefits of well developed financial systems for job creation in developing economies Beck, Homanen, Uras (2016)

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Thank You

Beck, Homanen, Uras (2016)

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Appendix

Variables DHire Casual DHire Family DHire Trained DHire Experienced DProfit DSales Invested Capital Business Age New Innovative Product ln(Loans) Dummy Outstanding Loan Applied for Loan Cannot Get Loan

DHire Permanent 0.451 (0.000) 0.447 (0.000) 0.724 (0.000) 0.737 (0.000) 0.124 (0.000) 0.142 (0.000) 0.146 (0.000) -0.025 (0.307) 0.204 (0.000) 0.076 (0.002) 0.077 (0.001) 0.040 (0.094) 0.021 (0.387)

DHire Casual 1.000

DHire Family

0.452 (0.000) 0.368 (0.000) 0.512 (0.000) 0.019 (0.433) 0.022 (0.403) 0.081 (0.002) -0.001 (0.969) 0.100 (0.000) 0.040 (0.099) 0.027 (0.263) 0.012 (0.611) 0.005 (0.837)

1.000 0.420 (0.000) 0.549 (0.000) 0.053 (0.028) 0.053 (0.039) 0.119 (0.000) -0.007 (0.777) 0.134 (0.000) 0.089 (0.000) 0.088 (0.000) 0.006 (0.794) 0.025 (0.303)

Beck, Homanen, Uras (2016)

DHire Trained

DHire Experienced

DProfit

DSales

InvestedCapital

Bu ¿ sinessAge

NewInnovativeProduct

ln(Loans)

DOutstandingLoan

AppliedforLoan

1.000 0.764 (0.000) 0.110 (0.000) 0.123 (0.000) 0.175 (0.000) -0.028 (0.250) 0.218 (0.000) 0.103 (0.000) 0.090 (0.000) 0.040 (0.095) 0.019 (0.424)

1.000 0.106 (0.000) 0.113 (0.000) 0.167 (0.000) -0.027 (0.266) 0.191 (0.000) 0.115 (0.000) 0.096 (0.000) 0.047 (0.054) -0.004 (0.878)

1.000 0.805 (0.000) -0.017 (0.485) -0.057 (0.016) 0.072 (0.002) -0.024 (0.303) -0.033 (0.159) -0.030 (0.195) -0.005 (0.844)

1.000 -0.009 (0.725) -0.088 (0.000) 0.118 (0.000) -0.021 (0.392) -0.034 (0.176) -0.033 (0.183) -0.004 (0.860)

1.000 0.047 (0.063) 0.119 (0.000) 0.034 (0.181) 0.017 (0.489) 0.052 (0.037) 0.016 (0.510)

1.000 0.009 (0.710) 0.013 (0.570) 0.023 (0.330) 0.036 (0.121) -0.012 (0.615)

Labor & Financing Constraints

1.000 0.126 (0.000) 0.115 (0.000) 0.051 (0.029) -0.011 (0.629)

1.000 0.993 (0.000) 0.377 (0.000) -0.412 (0.000)

1.000 0.387 (0.000) -0.427 (0.000)

Tilburg University

1.000 0.201 (0.000)

1

Demand for Skilled Labor and Financial Constraints

Burak Uras2. 1Cass Business School ... which may have adverse effects on firm employment constraints. Beck, Homanen, Uras ... markets, infrastructure, technology and innovation ... but indicate they need loan services in their business. Beck ...

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This paper offers an explanation for the evolution of wage inequality within and between industries and education groups over the past several decades. The model is based on the disproportionate depreciation of technology- specific skills versus gene

Precautionary Demand for Education, Inequality, and Technological ...
the interaction of technology and inequality ``between'' education groups.3 .... demand for education'' by showing that workers consider both the risk and the ...

Banking and Financial Participation Reforms, Labor ...
Sep 24, 2017 - participation in the banking system, and labor search to analyze the ...... specific job-finding and job-filling probabilities are defined as f(θj,t) = vj ...

Clinical judgement, expertise and skilled ...
call even though 'he' will not, because he does not exist. This is ..... Wilfrid Sellars calls the 'Myth of the Given' [11]. ..... bridge, MA: Harvard University Press. 12.

Financial constraints in China: Firm-level evidence
Feb 18, 2010 - As a service to our customers we are providing this early version of the manuscript. The manuscript will ... foreign firms can affect the lending policies of local banks. 8. Instead, its findings are in ... the lack of a good alternati