Transparency of a firm is a particular type of ‘soft-information’ considered to be one of the main challenges to the growth of firms in low-income countries (LICs). Low firm transparency leads to low levels of trust in the private sector, which can in turn lead to harder access to finance, reluctance for firms to switch trading partners and to provide better services, unwillingness to decentralize the decision-making process inside an organization and sharing productivity-enhancing information, and focusing on short-term rather than potentially more productive long-term investment projects. Few studies have focused on this specific source of market frictions, and very little is known about the channels by which firm transparency affects the functioning of the private sector in LICs, something this project aims to remedy.
The goal of this project is the following. First, the researchers will conduct a mix of extensive face-to-face and phone interviews with managers of firms in the construction sector, and all other agents and sub-contractors operating in their supply chain, to produce three main datasets to be linked to each other: 1) a dataset that describes all links among firms and other agents, and measures of their strength, so as to create the full business network; 2) a novel dataset that will contain unique information about a set of variables related to corporate transparency at the establishment level; 3) a dataset that contains management practices and balance sheet-type of information to construct measures such as productivity, investment, innovation, wages, and employment at the firm level. Second, they aim to provide preliminary evidence on the causal impact of firm transparency on firm performance, supply chain relationships and contractual terms, and market entry and exit.
This project emphasizes the importance of understanding the ways firms interact, the role of the local business climate on the choice of trading partners, contractual terms, investment decisions and managerial incentives, and the dynamics of business networks and information spillovers. The researchers hope that this project will generate interest in the fundamental policy question of the role that soft information, trust, and transparency play for the growth of enterprises in developing countries.
