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Who needs credit and who gets credit in Eastern Europe?

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Abstract

Based on survey data covering 8,387 firms in 20 countries we compare credit demand and credit supply for firms in Eastern Europe to those for firms in selected Western European countries. We find that firms in Eastern Europe have a higher need for credit than firms in Western Europe, and that a higher share of firms is discouraged from applying for a loan. The higher rate of discouraged firms in Eastern Europe is driven more by the presence of foreign banks than by the macroeconomic environment or the lack of creditor protection. We find no evidence that foreign bank presence leads to stricter loan approval decisions. Finally, credit constraints do have a real cost in that firms which are denied credit or discouraged from applying are less likely to invest in R&D and introduce new products. JEL Classification: G21, G30, F34.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1421.

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Length: 52 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:ecb:ecbwps:20121421

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Keywords: Credit constraints; banking sector; transition economies.;

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  1. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
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Citations

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Cited by:
  1. Alexander Popov & Gregory F. Udell, 2010. "Cross-border banking and the international transmission of financial distress during the crisis of 2007-2008," Working Paper Series 1203, European Central Bank.
  2. Martin Bijsterbosch & Tatjana Dahlhaus, 2011. "Determinants of credit-less recoveries," Working Paper Series 1358, European Central Bank.
  3. Nakhoda, Aadil, 2012. "The influence of financial leverage of firms on their international trading activities," MPRA Paper 35765, University Library of Munich, Germany.
  4. Brown, M. & Ongena, S. & Yesin, P., 2011. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Discussion Paper 2011-099, Tilburg University, Center for Economic Research.
  5. Peter Egger & Christian Keuschnigg, 2011. "Innovation, Trade, and Finance," CESifo Working Paper Series 3529, CESifo Group Munich.
  6. Steven Ongena & Alexander Popov, 2010. "Interbank market integration, loan rates, and firm leverage," Working Paper Series 1252, European Central Bank.
  7. Jarko Fidrmuc & Mariya Hake & Helmut Stix, 2011. "Households’ Foreign Currency Borrowing in Central and Eastern Europe," Working Papers 171, Oesterreichische Nationalbank (Austrian Central Bank).
  8. Stijn Claessens & Neeltje van Horen, 2013. "Impact of Foreign Banks," DNB Working Papers 370, Netherlands Central Bank, Research Department.
  9. Berg, Gunhild & Kirschenmann, Karolin, 2012. "Funding vs. real economy shock : the impact of the 2007-2009 crisis on small firms'credit availability," Policy Research Working Paper Series 6030, The World Bank.
  10. Christa Hainz & Tatjana Nabokin, 2013. "Measurement and Determinants of Access to Loans," CESifo Working Paper Series 4190, CESifo Group Munich.

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