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Institutional environment and firms' sources of financial capital in Central and Eastern Europe

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  • Li, Dan
  • Ferreira, Manuel Portugal

Abstract

The external business environment is a major determinant of which sources firms select to obtain financial capital. We examine how the regulatory, political, and financial dimensions of the institutional environment influence the extent to which firms rely on informal sources of financial capital. The analyses of data from 2869 firms in twenty-six transition economies in Central and Eastern Europe (CEE) indicate that ineffective regulatory system, underdeveloped financial system, and government corruption are strong determinants of firms' reliance on informal channels for financial capital. We also find that smaller firms are more vulnerable when the local financial system is underdeveloped and the regulatory institutions are less effective in these transition economies. A subgroup analysis of firms' forms of establishment shows that private firms are sensitive to the level of development of the local financial system and state-owned enterprises are particularly sensitive to the degree of corruption.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Business Research.

Volume (Year): 64 (2011)
Issue (Month): 4 (April)
Pages: 371-376

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Handle: RePEc:eee:jbrese:v:64:y:2011:i:4:p:371-376

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Web page: http://www.elsevier.com/locate/jbusres

Related research

Keywords: Financial capital Institutional environment Network Transition economies;

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Cited by:
  1. Manuel Portugal Ferreira & Fernando A. Ribeiro Serra & Benny Kramer Costa, 2011. "The RBV in International Business Studies: A bibliometric study of Barney?s (1991) contribution to the field," Working Papers 82, globADVANTAGE, Polytechnic Institute of Leiria.
  2. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.
  3. Fonseka, M.M. & Colombage, Sisira R.N. & Tian, Gao-Liang, 2014. "Effects of regulator's announcements, information asymmetry and ownership changes on private equity placements: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 126-149.

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