(particularly the larger ones) are part of larger firms, but the survey is designed to elicit information on financing and other issues for the establishment. Henceforth, for simplicity, we use “firms” to refer to establishments, and not to the larger firm of which some of them are a part.

Although Enterprise Surveys were conducted in earlier years, we include only data collected after 2006. Prior to that year, there was considerable heterogeneity across countries and regions in terms of sectors covered, questionnaire format, coverage of microenterprises, and sampling methodology. Moreover, the samples for surveys conducted before 2006 were not generally representative. Data from the Enterprise Surveys are supplemented with data from other sources. A complete list of variables and the sources of these data are shown in Table 1. Our final sample consists of around 60,000 firms in 119 countries.<sup>5</sup> The literature has relied on different size definitions of SMEs, often based on what types of firm samples the authors use. Beck et al. (2008) define small firms to be those with 5 to 50 employees<sup>6</sup> , medium firms to be those with 51 to 500 employees, and large firms as those with more than 500 employees.<sup>7</sup> While this definition is appropriate for their sample—where large, medium, and small firms respectively account for roughly 40%, 40% and 20% of their sample— it is perhaps inappropriate for our sample. The numbers of employees for the 25, 50, 75, 90, and 95 percentiles of the distribution of the number of employees in our sample are 9.25, 20.8, 66.4, 200, and 385, respectively. For our much larger and more representative sample, a different set of firm size definitions is appropriate. Toward that goal, in Figure 1, we present the histogram of the distribution of the number of employees. It is apparent that a large share of firms (about 29%) have 10 or fewer employees. Moreover, the share of firms with between 10 and 50 employees is also quite large, at roughly 45%. About 18% of firms have between 50 and 150 employees, and about 13% have more than 150 employees. In light of the large share of firms that are exceedingly small, and the extensive literature on credit for micro-enterprises, we create a category of micro firms with 10 or fewer employees. We define small, medium, and large firms respectively as those employing 11-50, 51-150, and 150 or more employees. In some sensitivity checks, we use the Beck et al. (2008) three-way size

> 5 For each dependent variable, the number of observations differ, and the figure of 60,000 is for dependent variables with fewer missing observations. The 119 countries refer to when external financing for either working capital or fixed asset investment is not missing.

> 6 Firms with fewer than 5 employees were excluded from the sampling frame.

> 7 Governments and international organizations also have differing definitions. The EU, for instance, uses 10, 50, and 250 employees as the thresholds for micro, small, medium, and large firms, respectively; the U.S. typically uses 500 for the demarcation of large firms, while Canada uses 100 and 500 as thresholds for small and medium. See <u>http://en.wikipedia.org/wiki/Small_and_medium-sized_enterprises.</u>

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