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Who needs credit and who gets credit in Eastern Europe?

Listed author(s):
  • Brown, Martin
  • Ongena, Steven
  • Popov, Alexander
  • Yesin, Pinar

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

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Date of creation: Feb 2012
Handle: RePEc:ecb:ecbwps:20121421
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