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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: https://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. Rose-Ackerman, Susan, 2001. "Trust and Honesty in Post-socialist Societies," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 415-43.
  2. 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.
  3. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  4. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2000. "The Role of Social Capital In Financial Development," CEPR Discussion Papers 2383, C.E.P.R. Discussion Papers.
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  7. Alberto Alesina & Eliana La Ferrara, 2000. "Participation in Heterogeneous Communities," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 847-904.
  8. 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.
  9. Claessens, Stijn, 2006. "Access to financial services: a review of the issues and public policy objectives," Journal of Financial Transformation, Capco Institute, vol. 17, pages 16-19.
  10. Steven N. Durlauf & Marcel Fafchamps, 2004. "Social Capital," NBER Working Papers 10485, National Bureau of Economic Research, Inc.
    • 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.
  11. Marcel Fafchamps, 2004. "Social Capital and Development," Economics Series Working Papers 214, University of Oxford, Department of Economics.
  12. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2006. "Business environment and the incorporation decision," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2967-2993, November.
  13. 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, Tilburg University, School of Economics and Management.
  14. Samuel Bowles & Herbert Gintis, 2001. "Social Capital and Community Governance," Working Papers 01-01-003, Santa Fe Institute.
  15. Martin Raiser & Alan Rousso & Franklin Steves, 2004. "Trust in Transition: Cross-country and Firm Evidence," Others 0401007, EconWPA.
  16. Bjørnskov, Christian, 2006. "How Does Social Trust Affect Economic Growth?," Working Papers 06-2, University of Aarhus, Aarhus School of Business, Department of Economics.
  17. 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.
  18. Frank A.G. den Butter & Robert H.J. Mosch, 2003. "Trade, Trust and Transaction Cost," Tinbergen Institute Discussion Papers 03-082/3, Tinbergen Institute.
  19. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  20. Alberto Alesina & Eliana La Ferrara, . "Participation in Heterogeneous Communities," Working Papers 151, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  21. 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.
  22. La Ferrara, Eliana & Alesina, Alberto, 2000. "Participation in Heterogeneous Communities," Scholarly Articles 4551796, Harvard University Department of Economics.
  23. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
  24. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  25. 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.
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