On the Role of Banks in Enterprise Restructuring

The paper provides a framework for understanding why in Romania, like in any other Central and Eastern European country, before starting the process of enterprise restructuring, it is necessary to reform the financial sector. It also provides statistical evidence for understanding why the reform of the financial system could accelerate the process of enterprise restructuring. The data collected from 256 state-owned enterprises relate the real bank borrowing to the profits of the enterprises, the real stock of inter-enterprise arrears and the size of the enterprises. For studying whether good or bad SOEs receive in a different way bank loans, the determinants of state firms borrowing in Romania are analyzed for each of the three years the analysis is concerned, testing the hypothesis that the market-oriented reform of the banking system in Romania generated a better allocation of bank credit to state-owned enterprises. The current sample of 256 SOEs will be then split into subsamples, on the basis of the profit margin per employee in each enterprise. The regression run for the data related to bank borrowing in the enterprises which are part of these subsamples will try to answer the question whether banks take into consideration the profitability of enterprises in their decision to allocate credit. The regressions will be run for each year and some conclusions will be inferred from the differences in the values and in the significance of the coefficients associated with the variables in the regression. Considered to be important in the allocation of bank credit are the bank arrears, inter-enterprise arrears and the size of enterprises. At the end of this paper some policy tools will be suggested for improving the allocation of bank borrowing to state firms.