The Value of Business Networks in Emerging Economies: An Analysis of Firms' External Financing Opportunities
AbstractThe paper argues that networked firms are likely to have an advantage in securing external finance in countries with weak legal and judicial institutions since it helps financial institutions to minimize the underlying agency costs of lending. An analysis of recent BEEPS data from fifteen Central and Eastern European (CEE) countries lends some support to this hypothesis. Even after controlling for other factors, firms affiliated to business associations are more likely to secure bank finance. Importance of being associated with business networks is particularly evident among firms who borrow from private domestic and foreign banks, as these new banks attempt to minimize costs of adverse selection. Networking however discriminates against the small and medium sized firms' access to bank loans in the CEE regions. Results are robust in both single cross-section and panel data analyses.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5738.
Length: 48 pages
Date of creation: May 2011
Date of revision:
Publication status: published as 'Does business networking boost firms' external financing opportunities? Evidence from Central and Eastern Europe' in: Applied Financial Economics, 2013, 23 (5), 415-432
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Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General
- P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-30 (All new papers)
- NEP-CFN-2011-05-30 (Corporate Finance)
- NEP-HME-2011-05-30 (Heterodox Microeconomics)
- NEP-NET-2011-05-30 (Network Economics)
- NEP-TRA-2011-05-30 (Transition Economics)
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