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A firm-level analysis of small and medium size enterprise financing in Poland

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  • Klapper, Leora
  • Sarria-Allende, Virginia
  • Zaidi, Rida

Abstract

The authors test competing theories of capital structure choices using firm-level data on firm borrowings. The majority of firms in the dataset are privately owned, young, micro or small and medium enterprise (SME) firms concentrated in the service sector. In general, the financing pattern of firms is low leverage ratios and, in particular, low levels of intermediated financing and long-term financing. Average firm growth rates decreased during the five years of the sample period. Average profitability growth ratios are also negative across age and sectors and large firms have the highest negative profit growth rates. Statistical tests find a positive firm size effect on financial intermediation. Larger firms have higher leverage ratios (both short term and long term), including higher use of trade credit. There is also a negative influence of profitability on leverage ratios (more profitable firms use less external financing), which supports the"pecking order"theory that in environments with greater asymmetric information (such as weaker credit information) firms prefer to use internal or inter-firm financing. Finally, firms operating in a competitive environment have higher leverage ratios. For instance, young, small firms are the most active employment generators in the Polish economy. In particular, the authors find that although SMEs seem to be very active in creating jobs in recent years. This suggests that a new type of firm is emerging that is more market and profit-oriented. But at the same time, these firms appear to have financial constraints that impede their growth. Improvements in the business environment, such as better credit and registry information, could help promote growth in this sector.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3984.

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Date of creation: 01 Aug 2006
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Handle: RePEc:wbk:wbrwps:3984

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Keywords: Small Scale Enterprise; Microfinance; Economic Theory&Research; Investment and Investment Climate; Financial Intermediation;

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References

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  1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  2. Attila Havas, 2002. "Does Innovation Policy Matter in a Transition Country? – The case of Hungary," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0205, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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  7. Bilsen, Valentijn & Konings, Jozef, 1998. "Job Creation, Job Destruction, and Growth of Newly Established, Privatized, and State-Owned Enterprises in Transition Economies: Survey Evidence from Bulgaria, Hungary, and Romania," Journal of Comparative Economics, Elsevier, vol. 26(3), pages 429-445, September.
  8. Daniel Gros & Marc Suhrcke, 2000. "Ten Years After: What is Special about Transition Countries?," CESifo Working Paper Series 327, CESifo Group Munich.
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  12. Chaves, R.A. & Sanchez, S. & Schor, S. & Tesliuc, E., 2001. "Financial Markets, Credit Constraints, and Investment in Rural Romania," Papers, World Bank - Technical Papers 499, World Bank - Technical Papers.
  13. Emilio Colombo, 2001. "Determinants of corporate capital structure: evidence from Hungarian firms," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 33(13), pages 1689-1701.
  14. E.C. Perotti & O. Carare, 1997. "The Evolution of Bank Credit Quality in Transition: Theory and Evidence from Romania," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 9702, Centre for Economic Reform and Transformation, Heriot Watt University.
  15. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 323-29, May.
  16. Budina, Nina & Garretsen, Harry & de Jong, Elke, 2000. "Liquidity constraints and investment in transition economies - the case of Bulgaria," Policy Research Working Paper Series 2278, The World Bank.
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Citations

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Cited by:
  1. Mateev, Miroslav & Poutziouris, Panikkos & Ivanov, Konstantin, 2013. "On the determinants of SME capital structure in Central and Eastern Europe: A dynamic panel analysis," Research in International Business and Finance, Elsevier, Elsevier, vol. 27(1), pages 28-51.
  2. Julia Hirsch & Uwe Walz, 2009. "Financing Decisions Along a Firm’s Life Cycle: Debt as a Commitment Device," Working Papers, Universidad Iberoamericana, Department of Economics 0409, Universidad Iberoamericana, Department of Economics.
  3. Claude Berthomieu & Anastasia Ri, 2009. "Process and Effects of Financial Liberalization in Transition Countries: A Selective Literature Survey," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(4), pages 453-473, December.
  4. Fidrmuc, Jarko & Hainz, Christa, 2010. "Default rates in the loan market for SMEs: Evidence from Slovakia," Economic Systems, Elsevier, Elsevier, vol. 34(2), pages 133-147, June.
  5. Vladimirov, Zhelyu & Simeonova-Ganeva, Ralitsa & Ganev, Kaloyan, 2012. "Interaction of leading and supporting factors for the SME competitiveness," MPRA Paper 37251, University Library of Munich, Germany.

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