Small firms play an important role in a country’s social as well as economic development by generating employment and cultivating entrepreneurship. However, small firms' growth is constrained by unavailability of finance due to lack of collateral and banking relationships [Beck and Demirguc-Kunt, 2006]. In such a credit constrained environment, large firms use their market power to buy goods on credit and extract favorable payment terms from small suppliers [Klapper et al., 2012; Murfin and Njoroge, 2015]. This immediately raises many questions: How do these small firms finance their receivables? Do they have to forego investment opportunities to finance their large buyers? In this project, we plan to quantify the cost of receivables for small firms in terms of foregone investment opportunities and firm growth.
| Project Team : | Chetan Subramanian and Tanya Jain |
| Sponsor : | IIM Bangalore |
| Project Status: | Ongoing (Initiated in October 2022) |
| Area : | Economics & Social Science |
| Abstract : | Small firms play an important role in a country’s social as well as economic development by generating employment and cultivating entrepreneurship. However, small firms' growth is constrained by unavailability of finance due to lack of collateral and banking relationships [Beck and Demirguc-Kunt, 2006]. In such a credit constrained environment, large firms use their market power to buy goods on credit and extract favorable payment terms from small suppliers [Klapper et al., 2012; Murfin and Njoroge, 2015]. This immediately raises many questions: How do these small firms finance their receivables? Do they have to forego investment opportunities to finance their large buyers? In this project, we plan to quantify the cost of receivables for small firms in terms of foregone investment opportunities and firm growth. |
