Informality and Profitability : Evidence from a New Firm Survey in Ecuador

This paper estimates the impact of informality on firm profits using a new firm-level survey designed specifically for this study. The survey was administered to about 1,200 firms with 50 employees or less in Ecuador's two largest cities, Quito and Guayaquil, plus two main centers of economic activity near the northern and southern borders. The paper's results confirm that the extent of firms' compliance with a set of regulatory requirements is linked to the perceived costs and benefits of informality, such as the probability of detection by the authorities and the likelihood of being fined. Nonetheless, taking into account the non-random placement of firms along the formality-informality spectrum and controlling for a large set of firm, owner, and location characteristics, the paper finds that more formal firms tend to be more profitable and have higher output per worker. This impact operates, inter alia, through more formal firms' ability to obtain improved access to credit and achieve higher sales by issuing receipts to clients.

Bibliographic Details

Main Authors:	Medvedev, Denis, Oviedo, Ana Maria
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2013-05
Subjects:	ACCESS TO CREDIT, ACCESS TO FINANCE, ACCOUNTING, ACCOUNTING PRACTICES, AFFILIATE, BANK LOAN, BASIC NEEDS, BORROWER, BRIBES, BUSINESS ASSOCIATIONS, BUSINESS FINANCE, BUSINESS HOURS, BUSINESS OBJECTIVES, BUSINESS OPPORTUNITY, BUSINESS OWNERS, CASH FLOWS, COMMERCIAL REGISTRY, COMPANY, CONTRACT ENFORCEMENT, CORRUPTION, CREDIT MARKET, CUSTOMER BASE, DEBT, DOWNSIZING, DUMMY VARIABLES, EARNINGS, ECONOMIC ACTIVITY, EDUCATIONAL ATTAINMENT, ELECTRICITY, EMPLOYEE, EMPLOYER, EMPLOYMENT, EMPLOYMENT GROWTH, EMPLOYMENT OPPORTUNITIES, ENFORCEMENT MECHANISMS, ENTERPRISE GROWTH, ENTERPRISE SURVEY, ENTERPRISE SURVEYS, ENTREPRENEUR, ENTREPRENEURIAL ABILITY, ENTREPRENEURS, EQUIPMENT, EXCLUSION, EXPANSION, EXPENDITURE, EXPENDITURES, FAMILIES, FAMILY BUSINESS, FEMALE ENTREPRENEURS, FIRM PERFORMANCE, FIRM SIZE, FIRM SIZES, FIRMS, FIXED COST, FORMAL FINANCE, GENDER, GPS, GROSS SALES, INFORMAL LENDERS, INFORMATION ASYMMETRIES, INSPECTION, INSPECTIONS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INVENTORY, LEGAL REQUIREMENT, LIABILITY, LICENSE, LICENSES, LOAN, LOAN MATURITY, LOAN SIZES, MANUFACTURING, MATURITIES, MICRO-ENTERPRISE, MICRO-ENTERPRISES, MICRO-ENTREPRENEURS, MICRO-FINANCE, MUNICIPALITIES, NEW BUSINESS, NOTARY, OPEN ACCESS, PENALTIES, PRESENT VALUE, PRODUCTIVITY, PROFITABILITY, PUBLIC BANKS, PUBLIC POLICIES, RECEIPTS, REGISTRY, REGULATORY REQUIREMENTS, RESULT, RESULTS, RETAINED EARNINGS, SHOPS, SMALL BUSINESS, SMALL BUSINESS LENDING, SMALL BUSINESSES, SMALL FIRM, SMALL FIRMS, SME, SME FINANCING, SME SUPPORT PROGRAMS, SOCIAL SECURITY, SOURCE OF INCOME, SOURCES OF FINANCE, START-UP, STATISTICAL ANALYSIS, SUPPLIER, TAX, TAX IDENTIFICATION NUMBER, TIME PERIODS, TRANSPORT, TURNOVER, UNION, URBAN AREAS, USES, VENDORS, WEB,
Online Access:	http://documents.worldbank.org/curated/en/2013/05/17654994/informality-profitability-evidence-new-firm-survey-ecuador http://hdl.handle.net/10986/15573
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