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Financial Development and Allocation of External Finance

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  • Jan Bena
  • Peter Ondko
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Abstract

We examine whether financial systems facilitate efficient allocation of resources into perspective projects. Employing European micro-level data from 1996-2005, we show that firms in industries with the best growth opportunities use more external finance in financially more developed countries. The result is robust to controlling for technology determinants of external finance and to choosing different proxies for growth opportunities. We also find that the explanatory power of the technology determinants decreases significantly once growth opportunities are controlled for, which suggests that the often used measures of determinants of external finance are partly driven by growth opportunities.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp398.

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Date of creation: Nov 2009
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Handle: RePEc:cer:papers:wp398

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Keywords: Financial development; external finance; allocative efficiency;

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References

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  8. Bena, Jan & Jurajda, Stepan, 2007. "Which Firms Benefit More from Financial Development?," CEPR Discussion Papers 6392, C.E.P.R. Discussion Papers.
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  18. Anna Ilyina & Roberto M. Samaniego, 2008. "Technology and Finance," IMF Working Papers 08/182, International Monetary Fund.
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Cited by:
  1. Purificacion Parrado-Martinez & Antonio Parta Ureña & Pilar Gomez Fernandez-Aguado, 2014. "Usefulness of Financial Soundness Indicators for risk assessment: The case of EU member countries," Working Papers 14.01, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
  2. Vahagn Jerbashian & Anna Kochanova, 2012. "The Impact of Telecommunication Technologies on Competition in Services and Goods Markets: Empirical Evidence," CERGE-EI Working Papers wp463, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Jerbashian, Vahagn & Kochanovay, Anna, 2012. "The impact of telecommunication technologies on competition in services and goods markets: Empirical evidence," 23rd European Regional ITS Conference, Vienna 2012 60377, International Telecommunications Society (ITS).

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