| By: |
Owolabi, Oluwarotimi (Brunel University);
Pal, Sarmistha (Brunel University) |
| Abstract: |
The paper argues that networked firms are likely to have an advantage in
securing external finance in countries with weak legal and judicial
institutions since it helps financial institutions to minimize the underlying
agency costs of lending. An analysis of recent BEEPS data from fifteen Central
and Eastern European (CEE) countries lends some support to this hypothesis.
Even after controlling for other factors, firms affiliated to business
associations are more likely to secure bank finance. Importance of being
associated with business networks is particularly evident among firms who
borrow from private domestic and foreign banks, as these new banks attempt to
minimize costs of adverse selection. Networking however discriminates against
the small and medium sized firms' access to bank loans in the CEE regions.
Results are robust in both single cross-section and panel data analyses. |
| Keywords: |
business networks, agency costs, external firm financing, bank loans, transition economies, endogeneity |
| JEL: |
G21 G30 L14 M20 P21 |
| Date: |
2011–05 |
| URL: |
http://d.repec.org/n?u=RePEc:iza:izadps:dp5738&r=net |