Business Dynamics – Insights from the International Business Registers Survey

Christine Zhenwei Qiang Trang Tran

Investment Climate, Trade & Competitiveness Global Practice, World Bank Group

Outline

2

Business Environment at a Glance

Supporting the Collection and Use of Quality Business Data

Results on Business Dynamics

Outline

3

Business Environment at a Glance

Supporting the Collection and Use of Quality Business Data

Results on Business Dynamics

Business Environment at a Glance

4

Business Environment

Reform Agenda

Internationalization

Business Expansion & Diversification Business Operations

Entry & Formalization

5

Pillars of Business Environment

Support to Business Entry Reforms

6

4 Projects

2 Projects

3 Projects

5 Projects

3 Projects 26 Projects

Currently we are working on 100+ projects in over 90 countries, of which over 40 business entry reform projects are active.

WBG and CRF/ECRF Collaboration

7

Sharing good international practice and expertise

Collaboration on technical and policy assistance

Joint data and research agenda

• Partnering with business registries to analyze the impact of reforms on business dynamics.

• Leveraging WBG relationships with business registries in developing countries for CRF survey.

Outline

8

Business Environment at a Glance

Supporting the Collection and Use of Quality Business Data

Results on Business Dynamics

International Business Registers Survey

9

Coverage

• 2007-2015 • 40+ developed & developing countries each year

… Snapshots of

• The working of business registries around the world

• Firm entry and survival dynamics

• How firms entry is related to registration procedures

Business Dynamism Varies Substantially Across Economies

10

0 20 40 60 80Total entry density

Pakistan

Sri Lanka

Canada, federal

Austria

Spain, association

Ireland

Lithuania

Croatia

Macedonia

France

Switzerland

Finland

Romania

Serbia

Norway

Latvia

Sweden

Italy

United Kingdom

Slovenia

Botswana

Singapore

Australia

Malaysia

Denmark

Netherlands

Estonia

Luxembourg

Hong Kong

New Zealand

Isle of Man

Liechtenstein

Gibraltar

Total entry density is defined as number of new company registrations per 1000 inhabitants.Total entry density excludes top and bottom 1%.Included are countries that report at least one value for each period 2007-2008, 2009-2011, 2012-2015.

Total Entry Density2007-2015

And Over Time

11

02

04

06

08

0

Tota

l e

ntr

y d

en

sity

Gib

ralta

r

Isle

of M

an

Luxem

bou

rg

New

Zea

lan

d

Hon

g K

ong

Den

mark

Lie

chte

nst

ein

Neth

erla

nd

s

Ma

laysi

a

Sin

gap

ore

Est

on

ia

Bots

wan

a

Serb

ia

Ita

ly

Austr

alia

Sw

ede

n

Norw

ay

Rom

ania

United

Kin

gdo

m

Fin

land

Ma

cedo

nia

Fra

nce

Latv

ia

Slo

ven

ia

Sw

itze

rla

nd

Cro

atia

Ire

lan

d

Lith

ua

nia

Spa

in, a

ssocia

tion

Austr

ia

Can

ad

a, fe

dera

l

Sri L

anka

Pakis

tan

Total entry density is defined as number of new company registrations per 1000 inhabitants.Total entry density excludes top and bottom 1%.Included are countries that report at least one value for all three sub periods.

Total Entry Density

2007-2008 2009-2011

2012-2015

Large, consistent gaps between entry and exit rates indicates underestimation of business terminations in many countries

12

0 20 40 60

KosovoHong Kong

GibraltarNew Zealand

AlbaniaCook Islands

Sri LankaQatar

BotswanaSingapore

United KingdomMongoliaSlovenia

RussiaSerbia

AustraliaAzerbaijan

EstoniaMauritius

Canada, federalHungary

NetherlandsDenmarkColombiaGuernsey

IndiaMontenegro

IrelandAustria

GeorgiaIsle of Man

CroatiaSwitzerland

LatviaNorwayFranceJersey

LuxembourgItaly

PakistanRomaniaMalaysia

LiechtensteinSweden

MacedoniaBelgiumFinland

LithuaniaLesotho

IsraelGermanyMoldova

Spain, associationCzech Republic

Entry/exit rate is defined as number of new company registrations/terminations over the stock of all business

Entry rate Exit rate

Ease of registration is associated with higher entry

13

Business entry is higher where processing time is faster 1

1.5

22

.53

Tota

l e

ntr

y d

en

sity (

pe

r 1

00

0 in

h.)

0 5 10 15Average time to process application for company formation (in workdays)

Total entry density: exclude top and bottom 1%.Binned scatterplots: average entry by 1st-20th quantiles of processing time.

20th quantile:

Average entry density = 1.3

Average processing time = 13.2

Countries with Longest Processing Time in Sample

14

HRV2014

DNK2009

FIN2010FIN2011

FIN2013FIN2014

FIN2015

NOR2007

SWE2007

SWE2009SWE2010

SWE2011

SWE2012

HRV2014

DNK2009

FIN2010FIN2011 FIN2013 FIN2014 FIN2015MNG2015

NOR2007

SWE2007SWE2009

SWE2010

SWE2011SWE2012

01

23

45

Tota

l entr

y d

en

sity

(p

er

100

0 in

h.)

10 15 20 25Average time to process application for company formation (in workdays)

Sole traders Private LLCs

Ease of registration is associated with higher entry

15

Business entry is higher where fewer documents are required

11

.52

2.5

3

Tota

l entr

y d

en

sity

(p

er

100

0 in

h.)

0 5 10 15Total count of documents required to incorporate a new company

Total entry density: exclude top and bottom 1%.Binned scatterplots: average entry by number of documents.

Ease of registration is associated with higher entry

16

02

46

Tota

l entr

y d

ensity (

per

1000 inh.)

0 500 1000 1500Minimum Share of Capital (as % of GDP per capita)

Total entry density: exclude top and bottom 1%.Excludes Zambia.

01

23

4

Tota

l e

ntr

y d

en

sity (

pe

r 1

00

0 in

h.)

0 .02 .04 .06Incorporation fee (% of GDP per capita)

Total entry density: exclude top and bottom 1%.Excludes top 1% of inforporation fees

Business entry is higher where capital requirements and incorporation fees are lower

Ease of registration is associated with higher entry

17

Business entry is higher where it is possible to register online

0.5

11.5

22.5

Tota

l entr

y d

ensity (

per

1000 inh.)

Not possible to completely register online.Possible to completely register online.Total entry density excludes top and bottom 1%.p-value of mean differences test: .00102239

Interestingly, mandatory e-filing is associated with faster processing time, but lower entry rates

18

0.5

11.5

2

Ave

rage p

rocess

ing

tim

e (

days)

e-filing not mandatory e-filing mandatoryp-value of mean differences test: .16106393

05

10

15

20

Entr

y r

ate

(%

)

E-filing not mandatory. E-filing mandatory.Excludes countries where it is not possible to completely register online.Entry rate excludes top and bottom 1%.p-value of mean differences test: .62905265

Summary

19

We observe very different business entry dynamics across countries and over time but:

• Entry generally increases with ease of business registration, including time, documentary burden, the ability to use online system and cost.

There are trade-offs in using e-registers to reduce registration burdens.

Exits are not accurately captured, implying shortcomings in monitoring business operational status.

Outline

20

Business Environment at a Glance

Supporting the Collection and Use of Quality Business Data

Results on Business Dynamics

Reducing Cost of Establishing a Business Matters, But…

21

Business registries can also support entry through providing valuable market information to improve formalization benefits

Yet, the survey reveals that

• Post-registration data are not always utilized;

• At the same time, the quality of the information on businesses might fall short of providing relevant data for decision making: business information is not always up to date e.g. business termination is not reported systematically, financial information is not always collected.

Questions remain on how to balance the costs and benefits of efforts to improve information quality collected by business registries:

• Regular updates of business status;

• Annual submission of accounts information;

• Sharing information with other agencies & the public.

Pilots to Incentivize Collection/Use of Registration Data

22

In Bangladesh:

• Low level of post-registration compliance (20%); • Experiment with mechanisms to incentivize firms to submit

financial statements; • Use information of newly registered firms to promote

business-to-business linkages and open new financing opportunities.

23

… for Evidence-Based Policy Making

Concluding Remarks

24

Ease of entry, including efficiency of business registries, matter for business entry.

Post-registration data on businesses are still not widely captured and utilized.

Promising agenda for collaboration: identify best practice and support developing countries for better collection & use of business registration data.

Thank You