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Access to finance, bureaucracy, and capital allocation efficiency

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  • Cao, Wenbin
  • Duan, Xiaoman
  • Niu, Xu

Abstract

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.

Suggested Citation

  • Cao, Wenbin & Duan, Xiaoman & Niu, Xu, 2023. "Access to finance, bureaucracy, and capital allocation efficiency," Journal of Economics and Business, Elsevier, vol. 125.
    • Handle: RePEc:eee:jebusi:v:125-126:y:2023:i::s0148619523000188
    DOI: 10.1016/j.jeconbus.2023.106125
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    1. Jaume Belles-Sampera & Montserrat Guillen & Miguel Santolino, 2023. "Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem," Mathematics, MDPI, vol. 11(18), pages 1-17, September.

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    More about this item

    Keywords

    Capital allocation efficiency; Marginal product of capital; Access to finance; Bureaucracy;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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