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The Value of Business Networks; an Analysis of Firm Financing in Transition Economies

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Author Info
Oluwarotimi Owolabi ()
Sarmistha Pal ()

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Abstract

The paper argues that the networked firms have an advantage in securing bank finance in countries with weak legal and judicial institutions. An analysis of recent BEEPS data from sixteen CEE transition countries lends some support to this hypothesis. Firms affiliated to business associations are more likely to have bank finance while small and medium firms are less likely to secure it. Importance of being associated with business networks is particularly evident among firms who borrow from foreign banks, as the latter attempt to hedge risk in an uncertain environment. Significance of business networking however vanishes if institutional quality improves.

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Publisher Info
Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 09-01.

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Length: 40 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:edb:cedidp:09-01

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  5. Kali, Raja, 1999. "Endogenous Business Networks," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 615-36, October.
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  8. Rafael La Porta & Florencio Lopez-de-Silanes & Cristian Pop-Eleches & Andrei Shleifer, 2004. "Judicial Checks and Balances," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 445-470, April. [Downloadable!] (restricted)
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  9. Bonin, John P. & Leven, Bozena, 1996. "Polish Bank Consolidation and Foreign Competition: Creating a Market-Oriented Banking Sector," Journal of Comparative Economics, Elsevier, vol. 23(1), pages 52-72, August. [Downloadable!] (restricted)
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  11. Abhijit Banerjee & Kaivan Munshi, 2004. "How Efficiently is Capital Allocated? Evidence from the Knitted GarmentIndustry in Tirupur," Review of Economic Studies, Blackwell Publishing, vol. 71(1), pages 19-42, 01. [Downloadable!] (restricted)
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