Identifying the determinants of entrepreneurship is an important research and policy goal, especially in emerging market economies where lack of capital and supporting infrastructure often imposes stringent constraints on business growth. This paper studies the impact of a comprehensive business and financial literacy program on firm outcomes of young entrepreneurs in an emerging post‐conflict economy, Bosnia and Herzegovina. The authors conduct a randomized control trial and find that while the training program did not influence business survival, it significantly improved business practices, investments, and loan terms for surviving businesses. Entrepreneurs with higher ex-ante financial literacy further exhibited some improvements in business performance and sales.
Business & Financial Knowledge and Perceptions: Examined results from exit test, so only viable for those completing training. Business Creation & Survival. Business Performance: One-month profits, maintained, increased, or decreased monthly profits compared to one year earlier? Business Growth: Maintained, increased, or decreased monthly sales compared to one year earlier? Employee number; installation expansion. Business Practises & Investments: Self-reported business practises and investments. Loan Behaviour (treatment effect): Training had an effect on the number of loans taken out from partner, characteristics of new loans taken out from Partner; loan default and restructuring.
Business & Financial Knowledge and Perceptions: The fraction of correct answers in test is significantly higher for 3/8 questions. Participants did significantly worse in 2/8 questions. Total score increased significantly after training, on average from 2.6 to 2.9. Business Creation & Survival: Training had no significant effect on whether study participants had a business at follow‐up. Business Performance: On average, training didn't increase business profits. However, the heterogeneous treatment effects analysis suggests that the training increased profits for individuals with above median financial literacy at baseline, compared to the control group on average. This effect corresponds to a 54% increase in profits; this is only significant at the 15% level. On average, entrepreneurs in the treatment group were not significantly more likely to have said that their profits increased over the past year, compared to the control. As with profits, entrepreneurs with above median financial literacy at baseline were 14.3% more likely than peers in control to have stated that their profits increased over the past year. Business Growth: No significant increase of the training on whether sales increased over the past year, on average. Entrepreneurs with above median financial literacy at baseline were 16.7% more likely to say sales increased over the past year than their peers in the control group. No significant effect of the training on employee number or installation expansion. Business Practises & Investments: Entrepreneurs in the treatment group are 22% less likely than entrepreneurs in the control group to use personal accounts for their business. Training didn't have a significant effect on using credit cards for the business. Training caused treatment group to be 10.6% more likely to invest their savings in the business than the control group. We also find that treatment group entrepreneurs were 16.5% more likely to have implemented new production processes than control group. On the other hand, no significant effect of the training on developing new products and on starting new marketing campaigns. Aggregate impact on business investments is large, positive, and statistically significant, when RHS aggregated z-scores are computed for all outcome measures Loan Behaviour (treatment effect): No statistically significant effect of the training on the probability of taking out a loan or the number of loans taken out from Partner in the post‐training period. Training did not significantly change the average loan amount but there was significant treatment effect on the number of installments; treatment entrepreneurs are more likely to negotiate a larger number of installments than control group entrepreneurs. Treatment effect on loan payments being past due and loan write‐off is negative, but not significant. Treatment group is 3.4 % more likely than control to refinance its loans with Partner.