Bank Credit And Business Networks

Asim Khwaja, Atif Mian and Abid Qamar
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Asim Khwaja: Harvard University
Abid Qamar: State Bank of Pakistan

Working Papers from Princeton University. Economics Department.

Abstract: We construct the topology of business networks across the population of firms in an emerging economy, Pakistan, and estimate the value that membership in large yet diffuse networks brings in terms of access to bank credit and improving financial viability. We link two firms if they have a common director. The resulting topology includes a "giant network" that is order of magnitudes larger than the second largest network. While it displays "small world" properties and comprises 5 percent of all firms, it accesses two-thirds of all bank credit. We estimate the value of joining this giant network by exploiting "incidental" entry and exit of firms over time. Membership increases total external financing by 16.6 percent, reduces the propensity to enter financial distress by 9.5 percent, and better insures firms against industry and location shocks. Firms that join improve financial access by borrowing more from new lenders, particularly those already lending to their (new) giant-network neighbors. Network benefits also depend critically on where a firm connects to in the network and on the firm's pre-existing strength.

Keywords: Business Networks; Financial Development; Network Analysis (search for similar items in EconPapers)
JEL-codes: D02 D85 L14 O16 (search for similar items in EconPapers)
Date: 2011-02
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Bank Credit and Business Networks (2011)
Working Paper: Bank Credit And Business Networks (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2011-1

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