Access to finance, bureaucracy, and capital allocation efficiency

We study the degree and determinants of capital allocation efficiency across firms, using comprehensive firm-level survey data covering a broad spectrum of developing countries. As measured by the dispersion in firms’ marginal revenue product of capital, we document that capital misallocation is per...

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Bibliographic Details
Published in:Journal of economics and business 2023-05, Vol.125-126, p.106125, Article 106125
Main Authors: Cao, Wenbin, Duan, Xiaoman, Niu, Xu
Format: Article
Language:English
Subjects:
Access to finance
Bureaucracy
Capital allocation efficiency
Marginal product of capital
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Summary:We study the degree and determinants of capital allocation efficiency across firms, using comprehensive firm-level survey data covering a broad spectrum of developing countries. As measured by the dispersion in firms’ marginal revenue product of capital, we document that capital misallocation is pervasive. Limited access to finance, bureaucracy, information asymmetry, and gender inequality play essential roles in impeding the most efficient capital allocation. Quantile regression estimates indicate more significant effects of these factors on already highly distorted firms. The results have direct policy implications; governments could achieve a more efficient capital allocation by eliminating these distortions to enhance economic performance. •Capital misallocation is pervasive in developing countries.•Limited access to finance, bureaucracy, and gender inequality contribute to capital misallocation.•Highly distorted firms have more significant effects of these factors.•By eliminating these distortions, policymakers could help achieve a more efficient allocation of capital.
ISSN:0148-6195
1879-1735
DOI:10.1016/j.jeconbus.2023.106125