The Role of Accounting in the Informal Economy
Marcela Aguilar, Gary Lind, and K. Ramesh
Journal of Accounting and Economics, 2026
Best Paper Award at the 2025 JAE Conference
Abstract
Using novel survey data from 1426 firms in Guatemala, Honduras, and El Salvador, we examine the voluntary adoption of accounting systems by microenterprises operating in the informal economy and its association with access to credit and business growth. Despite the absence of regulatory mandates, 44 percent of informal microbusinesses maintain systematic financial records, with roughly three-quarters of those using notebooks and one-quarter using digital records. Accounting quality is closely linked to the owner’s startup motivation, financial stake, and management capabilities. Informal firms that rely on larger suppliers, extend customer installment credit, engage in marketing promotions, or employ more formal organizational structures are also more likely to adopt structured recordkeeping systems, highlighting accounting’s role as a managerial tool rather than as a compliance function or as a precursor to entering the formal economy. Informal firms that maintain notebooks separating business and personal accounts are significantly more likely to apply for and obtain bank loans. Our inferences for access to credit also extend to microenterprises in the Dominican Republic. In addition, accounting quality appears to support lender due diligence even among informal firms, particularly when lenders are more sophisticated. Using a broader measure of credit market status, we find that accounting quality rises monotonically across credit tiers. Finally, we find that entrepreneurs with higher-quality accounting systems are more likely to plan for business expansion. By illuminating the motivations behind accounting choices in low-enforcement settings, this study deepens our understanding of the foundational role accounting plays in early-stage business development in emerging markets.
Financial Acumen at Scale: Bridging Knowledge Gaps for Microenterprise Success. Evidence from an AI-Based Mentorship Program [Job-Market Paper]2025
Analysis of the Potential Impact on the Salvadoran Youth Labor Market Resulting from the COVID-19 Pandemic2020
Survey of Micro-Businesses in the Informal Economy in the Northern Countries of Central America2020
