TY  - JOUR
AU  - McKenzie, David
AU  - Woodruff, Christopher
TI  - Business Practices in Small Firms in Developing Countries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 21505
PY  - 2015
Y2  - August 2015
DO  - 10.3386/w21505
UR  - http://www.nber.org/papers/w21505
L1  - http://www.nber.org/papers/w21505.pdf
N1  - Author contact info:
David McKenzie
The World Bank, MSN MC3-307
1818 H Street N.W.
Washington, DC 20433
Tel: 202-458-9332
E-Mail: dmckenzie@worldbank.org

Christopher Woodruff
Queen Elizabeth House
University of Oxford
OX1 3TB
UK
E-Mail: christopher.woodruff@qeh.ox.ac.uk
AB  - Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, record-keeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The effect of business practices is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices. Competition has less robust effects.
ER  -