Does access to stock market alleviate credit restrictions for firms in developing world?

Credit constraint is one major market failure in many developing countries, as evidenced by Banerjee and Duflo (2005). Its relevance to enhance innovation and growth is crucial, since it hampers entrepreneur efforts for making investments. Terra (2003) and Aldrighi and Bisinha (2010) have provided micro evidence that Brazilian firms are credit constrained using firm-level data. Both papers use information of firms which are required by law to publish their balance sheet data, since their shares are available for the public in the stock market. Their findings suggest that Brazilian firms are credit constrained, yet differences emerge. While Terra (2003) outcomes provide evidence that credit constraints are softer for large firms, Aldrighi and Bisinha (2010) results find the opposite. Although they have provided useful information regarding credit restriction faced by open capital Brazilian firms, they are silent in relation to firms without access to stock market. This group comprehends the major part of Brazilian firms. The aim of this current paper is to investigate whether this type of firms are more credit restricted than those which have access to the stock market. In order to investigate this phenomenon, we will adapt the methodology used by Fazzari et alli (1988) and Kaplan and Zingales (1997), and we will make use of a new dataset containing information for firms with non-traded shares. In this way, we can measure the degree in which access to the stock market can overcome credit restrictions. Moreover, we may also evaluate how Brazilian firms with closed capital are credit restricted, which is the most representative firms' type in developing countries.