Topics on financial structures

The two papers of this dissertation focus on the role of financial intermediaries in the economic development of Colombia.The first paper investigates the financial status of small and medium size manufacturing enterprises (SMEs) in Colombia. The paper investigates the SMEs' access to formal sources of credit relative to their share in value added, production and employment. I conducted a survey of selected SMEs, which describes the financial position of SMEs and SMEs' perceptions on financial problems. I also conducted interviews with financial intermediaries in order to establish their behavior towards SMEs. The main results are: First, SMEs' share in production, value added and employment in the economy is large relative to their share of formal credit. Second, SMEs' most important source of investment finance is their internal resources, followed by banking institutions, supplier's credit and the extrabanking market or informal credit. Third, administrative costs are important to financial intermediaries when making lending decisions. This results in low levels of credit allocated to SMEs. Fourth, government intervention in the form of directed and subsidized credit alters large firms' borrowing behavior. Large firms borrow in the formal credit market to "double intermediate", i.e. borrow to act as a credit intermediary. An important policy implication of this result is the misallocation of resources triggered by directed and subsidized credit.The second paper examines the investment behavior of a sample of Colombian firms. The findings of this paper are as follows. First, firms of all sizes exhibit unevenly distributed (or clumpy) investment throughout the period 1984-1990. This pattern of investment was not motivated by aggregate shocks, capital shocks, capital intensity or demand shocks. Second, firms are heterogeneous in their balance sheet positions and in the effect of liquidity on investment. In particular, smaller firms hold more liquid assets on average than larger firms. Third, examination of the flow of funds in the year of peak investment shows that the primary sources of investment financing used by firms of all sizes are short term borrowing and profits rather than selling short term assets. This shows that firms did not need to wait to accumulate assets to finance their peak investment. Thus, clumpiness was not directly motivated by this selfinancing need. However, firms may self-insure by accumulating short term assets. Econometric results from quantile regressions procedures indicate that this is the case. The fact that firms with lower debt capacities hold a stronger asset position, suggests a smoothing mechanism which allows these firms to take advantage of a future good shock or to cushion in case of a bad shock.U of I OnlyETDs are only available to UIUC Users without author permissio