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Title:The value of business networks in emerging economies: An analysis of firms' external financing opportunities PDF Logo
Authors:Owolabi, Oluwarotimi
Pal, Sarmistha
Issue Date:2011
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5738
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:urn:nbn:de:101:1-201106013883
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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