The role of bank credit in business financing in Poland

Anna Białek-Jaworska and Natalia Nehrebecka ()

No 2016-03, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: The purpose of the paper is to verify the applicability of the pecking order theory to Polish non-finance companies’ inclination to use credit-based financing, as well as to indicate the long-term and short-term bank credit use determinants, including the monetary policy impact and the year effect. The analysis covers a sample of 800,000 observations across the period 1995-2011, using the GMM sys-tem method. The impact of foreign and government ownership, the share of exports, profitability, liquidity, fixed assets collateral and monetary policy are the determinants of the long-term and short-term bank loan in business financing investigated in the study. For small and medium-sized enterprises, a negative correlation is found between profitability and both long- and short-term loan financing, as well as between liquidity and short-term loan financing, ac-cording to what the pecking order theory assumes. A negative impact of restrictive monetary policy effected via interest rate and rate of exchange channels on Polish firms’ decisions as regards financing their business with short-term bank loan is found. The effect of the current and previous period payment gridlocks on short-term bank loan financing experienced by small and medium-sized enterprises should help banks adjust their loan offer to SMEs’ needs. The correlation between the bankruptcy risk level and companies’ short-term borrowing decisions – positive in the group of large firms and ad-verse among SMEs – should guide banks’ loan committees when modifying their creditworthiness analysis and loan application verification procedures. The use of (S)VAR panel method for investigating the response of the bank loan financing level to the interest rate, exchange rate and credit risk disturbance (shock) are the original aspects of the study. The empirical evidence that a higher share of liquid securities in assets reduces the use of short-term loan and that in small firms its level in a previous period is positively correlated with the use of short-term bank loan financing is the added value of the paper.

Keywords: bank loan; long-term bank loan; short-term bank loan; pecking order theory; system GMM; (S)VAR (search for similar items in EconPapers)
JEL-codes: C23 C33 E52 G21 G32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016
New Economics Papers: this item is included in nep-cfn, nep-mac, nep-sbm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2016-03

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