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Have banks filled the gap? Credit as a mechanism of corporate governance in a transition country: example of Poland

Poland, as any other transition country, suffers from inefficient corporate governance as firms have difficulties with obtaining external financing. This paper aims to examine whether bank’s involvement in corporate control reduces information asymmetries, and hence lessens firm’s financial constraints – phenomenon frequently measured by investment-cash flow sensitivity. In the sample of all non-financial companies listed during 1999-2002 on the Polish stock exchange firms with a close relationship with banks are almost as much financially constrained as firms without such ties. However, the former group relies more heavily on bank loans than on internal capital in their investment activities. In contrast, firms without a close relationship with banks finance to larger extent their investment with internal capital than with credit. It may be interpreted that bank loans are more important source of financing for firms with bank ties than for firms without bank ties.

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File URL: http://mpra.ub.uni-muenchen.de/642/1/MPRA_paper_642.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 642.

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Date of creation: 04 Apr 2005
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Handle: RePEc:pra:mprapa:642
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  1. Patrick M. McGuire, 2004. "Bank ties and bond market access: evidence on investment-cash flow sensitivity in Japan," BIS Working Papers 151, Bank for International Settlements.
  2. Mathias Dewatripont & Jean Tirole, 1994. "A theory of debt and equity: diversity of securities and manager-shareholder congruence," ULB Institutional Repository 2013/9593, ULB -- Universite Libre de Bruxelles.
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  4. Fohlin, Caroline, 1996. "Relationship Banking, Liquidity, and Investment in the German Industrialization," Working Papers 913, California Institute of Technology, Division of the Humanities and Social Sciences.
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  8. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-32, March.
  9. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  10. Christian Weller, 2001. "The Finance-Investment Link in a Transition Economy: Evidence For Poland From Panel Data," Comparative Economic Studies, Palgrave Macmillan, vol. 43(1), pages 31-52, April.
  11. Kim, Yitae & Park, Kwangwoo & Ratti, Ronald & Shin, Hyun-Han, 2002. "Do Main Banks Extract Rents from their Client Firms? Evidence from Korean Chaebol," CEI Working Paper Series 2002-9, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  12. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
  13. Charles W. Calomiris, 1998. "Universal Banking "American-Style"," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 154(1), pages 44-, March.
  14. Gray, Cheryl W. & Holle, Arnold, 1996. "Bank-led restructuring in Poland : an empirical look at the bank conciliation process," Policy Research Working Paper Series 1650, The World Bank.
  15. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
  16. Steven N. Kaplan & Luigi Zingales, 1995. "Do Financing Constraints Explain Why Investment is Correlated with Cash Flow?," NBER Working Papers 5267, National Bureau of Economic Research, Inc.
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