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SMEs access to formal finance in post-communist economies: Do institutional structure and political connectedness matter?

Kobil Ruziev () and Don Webber ()

Working Papers from Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol

Abstract: In post-communist economies, a disproportionately greater share of formal finance is channelled to larger enterprises and SMEs lack appropriately-priced formal finance. This article examines whether institutional structure and interpersonal connectedness with bureaucrats exacerbate this formal finance misallocation. We show that access to and use of interpersonal bureaucratic networks improve chances of receiving formal bank credit by between 4–10%. The benefits of interpersonal links are stronger for larger SMEs, and being connected to bureaucratic networks is not associated with enterprise growth. These findings imply that traditional policies that increase bank finance to SMEs should also aim to improve impartiality of bureaucratic institutions and enforceability of private contracts.

Keywords: Financial development; Formal finance; Firm-level analysis; Transition economies (search for similar items in EconPapers)
JEL-codes: G00 G38 B52 P3 M2 (search for similar items in EconPapers)
Date: 2017-01-01
New Economics Papers: this item is included in nep-ent, nep-hme, nep-sbm and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:uwe:wpaper:20171701

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