BUSINESS REGISTRATION AND FIRM PERFORMANCE: SOME LESSONS FROM INDIA

What is it about?

The aim of this paper is to evaluate the impacts on future firm performance of a firm deciding to register from the outset of its operations. Until now, the assumption has been that starting-up registered is linked to higher future firm performance.

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Why is it important?

Reporting World Bank Enterprise Survey data collected in 2014 on 9,281 formal enterprises in India, and controlling for other determinants of firm performance as well as the endogeneity of the registration decision, the finding is that formal enterprises that start-up unregistered and spend longer unregistered have significantly higher subsequent annual sales and employment growth rates compared with those registered from the outset. When the number of years spent unregistered is included, there are also productivity gains from delaying registration. The tentative explanation is that in this weak institutional environment, the advantages of registering from the outset are outweighed by the benefits of deferring registration. Evaluating the policy implications, the argument is that there is a need to shift away from the conventional eradication approach towards unregistered start-ups based on the assumption that they are unproductive, and towards a more facilitating approach that improves the benefits of being registered and tackles the systemic formal institutional deficiencies that lead entrepreneurs to delay their decision to register.

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