Enterprise Size, Financing Patterns and Credit Constraints in Brazil: Analysis of Data from the Investment Climate Assessment Survey

This paper investigates the importance of firm size with respect to access to credit, relative to firm performance, and other factors that may affect credit worthiness, such as management education, location, or the industrial sector to which the firm belongs.

The paper examines the relationship between firm size, financing patterns and restrictions to access to finance in thirteen Brazilian states.It then addresses the following questions:

• Are financing patterns for smaller firms different from those of larger firms?
• Do small firms have less access to credit than larger firms?
• How important is firm size, compared to performance, in assessing access to credit and credit constraints?
• Are credit provision criteria different for long-term loans and for short-term loans?
• Does bank ownership impact differentially on credit provision across firm sizes?

The paper finds that:

• Size strongly affects credit, compared to performance as well as other variables, suggesting quantitative limitations to credit access;
• The impact of size on access to credit is greater for long-term loans;
• Public financial institutions are more likely to lend to large firms;
• Financial access constraints may have a less significant differential impact across firms of different sizes than other constraints, though the cost of finance as a constraint is very important.