Marcela Aguilar; Gary Lind, and K. Ramesh
Utilizing a novel survey dataset from Central America, we examine the determinants and the real effects of adopting accounting practices by microenterprises with different levels of engagement in the formal economy. Although most formal firms adopt accounting systems due to the demands of business formalization, they tend to choose a higher quality system when they rely on their own capital and engage in formal business practices with customers and suppliers. Surprisingly, despite the lack of any mandate, 36% (52%) of informal (sub-formal) firms voluntarily adopt a formal accounting system, with 6% (17%) choosing a higher quality system. Both these decisions are influenced by access to external capital, reliance on personal funds for investment, extension of credit to customers, marketing promotions, as well as the entrepreneurs’ personal motivations and socioeconomic traits. In terms of real effects, high-quality accounting systems are associated with higher sales revenue, business expansion plans, the provision of employee incentives, and enhanced access to bank loans, highlighting both the managerial and financing roles of accounting. Despite the absence of mandates, our evidence shows that even informal microenterprises recognize the value of robust accounting practices. Our study underscores the importance of tailored public policy programs on enabling accounting services in microenterprises, thereby supporting business productivity, financial inclusion, and economic growth in developing economies.
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
