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The Relationship between Trust and a Firm’s Access to Financing: Evidence from Transitional Countries

  • Afandi, Elvin
  • Kermani, Majid

In our study we investigate the association between inter-organizational trust and access to financing for 11,500 firms across transitional countries (including Turkey). The results of our study contribute to the stream of economic development literature in two primary ways. First, we show that the degree of prepayment demanded by private sector firms from their customers tends to be a good measure of (dis)trust in business transactions. In transitional countries, whether or not a private firm demands prepayment for its sales is found to be a strong indicator of (dis)trust for its customers and/or a lack of confidence in the contract enforcement at the country level. Second, and most importantly, our econometric analyses suggest that enterprises in countries with high levels of inter-firm trust are more likely to obtain bank loans and less likely to report access to financing as a major obstacle to their businesses. This result remains robust with the inclusion of many controls and various specification checks as well as econometric adjustments for the potential endogeneity of trust and access to financing.

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File URL: http://mpra.ub.uni-muenchen.de/46998/1/MPRA_paper_46998.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46998.

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Date of creation: 15 Dec 2012
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Handle: RePEc:pra:mprapa:46998
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  1. Bjørnskov, Christian, 2006. "How Does Social Trust Affect Economic Growth?," Working Papers 06-2, University of Aarhus, Aarhus School of Business, Department of Economics.
  2. Stijn Claessens, 2006. "Access to Financial Services: A Review of the Issues and Public Policy Objectives," World Bank Research Observer, World Bank Group, vol. 21(2), pages 207-240.
  3. Durlauf, Steven N. & Fafchamps, Marcel, 2005. "Social Capital," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 26, pages 1639-1699 Elsevier.
  4. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2004. "Business Environment and the Incorporation Decision," Policy Research Working Paper Series 3317, The World Bank.
  5. Martin Raiser & Alan Rousso & Franklin Steves, 2004. "Trust In Transition: Cross Country And Firm Evidence," William Davidson Institute Working Papers Series 2004-640, William Davidson Institute at the University of Michigan.
  6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," NBER Working Papers 7563, National Bureau of Economic Research, Inc.
  7. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  8. La Ferrara, Eliana & Alesina, Alberto, 2000. "Participation in Heterogeneous Communities," Scholarly Articles 4551796, Harvard University Department of Economics.
  9. Utku Teksoz, 2008. "Trust in Transition: Cross-Country and Firm Evidence," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(2), pages 407-433, October.
  10. John F. Helliwell & Robert D. Putnam, 1995. "Economic Growth and Social Capital in Italy," Eastern Economic Journal, Eastern Economic Association, vol. 21(3), pages 295-307, Summer.
  11. Calderon, Cesar & Chong, Alberto & Galindo, Arturo, 2002. "Development and Efficiency of the Financial Sector and Links with Trust: Cross-Country Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 51(1), pages 189-204, October.
  12. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  13. Thorsten Beck & Asli Demirgüç-Kunt, 2008. "Access to Finance: An Unfinished Agenda," World Bank Economic Review, World Bank Group, vol. 22(3), pages 383-396, November.
  14. Marcel Fafchamps, 2004. "Social Capital and Development," Economics Series Working Papers 214, University of Oxford, Department of Economics.
  15. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
  16. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  17. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all? : Policies and pitfalls in expanding access," Other publications TiSEM aec73d3a-d6eb-457f-9182-3, School of Economics and Management.
  18. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  19. Alberto Alesina & Eliana La Ferrara, 2000. "Participation In Heterogeneous Communities," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 847-904, August.
  20. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transitition countries," BOFIT Discussion Papers 7/2004, Bank of Finland, Institute for Economies in Transition.
  21. Ahlerup, Pelle & Olsson, Ola & Yanagizawa, David, 2007. "Social Capital vs Institutions in the Growth Process," Working Papers in Economics 248, University of Gothenburg, Department of Economics.
  22. Samuel Bowles & Herbert Gintis, 2001. "Social Capital and Community Governance," Working Papers 01-01-003, Santa Fe Institute.
  23. repec:dgr:uvatin:20030082 is not listed on IDEAS
  24. Rose-Ackerman, Susan, 2001. "Trust and Honesty in Post-socialist Societies," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 415-43.
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