Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/52016 
Year of Publication: 
2011
Series/Report no.: 
IZA Discussion Papers No. 5738
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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.
Subjects: 
business networks
agency costs
external firm financing
bank loans
transition economies
endogeneity
JEL: 
G21
G30
L14
M20
P21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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