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SMEs access to formal finance in post-communist economies: Do institutional structure and political connectedness matter?

Author

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  • Kobil Ruziev

    (University of the West of England, Bristol)

  • Don Webber

    (University of the West of England, Bristol)

Abstract

In post-communist economies, a disproportionately greater share of formal finance is channelled to larger enterprises and SMEs lack appropriately-priced formal finance. This article examines whether institutional structure and interpersonal connectedness with bureaucrats exacerbate this formal finance misallocation. We show that access to and use of interpersonal bureaucratic networks improve chances of receiving formal bank credit by between 4–10%. The benefits of interpersonal links are stronger for larger SMEs, and being connected to bureaucratic networks is not associated with enterprise growth. These findings imply that traditional policies that increase bank finance to SMEs should also aim to improve impartiality of bureaucratic institutions and enforceability of private contracts.

Suggested Citation

  • Kobil Ruziev & Don Webber, 2017. "SMEs access to formal finance in post-communist economies: Do institutional structure and political connectedness matter?," Working Papers 20171701, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    • Handle: RePEc:uwe:wpaper:20171701
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    Cited by:

    1. Kobil Ruziev, 2017. "Political connectedness and formal finance in transition economies," IZA World of Labor, Institute of Labor Economics (IZA), pages 398-398, November.
    2. Faisal Ahmed Ali Al-Hammadi & Ahmad Amri Zainal Adnan, 2020. "The Moderating Effect of Organisational Culture on the Relationship Between Workplace Learning and Employees’ Performances in the United Arab Emirates," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 6, ejes_v6_i.

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    More about this item

    Keywords

    Financial development; Formal finance; Firm-level analysis; Transition economies;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • P3 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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