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

Ruziev, Kobil; Webber, Don

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.

• Working Paper Type: Working Paper
• Publicly Available Date: Jun 7, 2019
• Peer Reviewed: Not Peer Reviewed
• ISBN: NA
• Keywords: SMEs, access, formal finance, post-communist economies, institutional structure, political connectedness
• Public URL: https://uwe-repository.worktribe.com/output/887669
• Publisher URL: http://www1.uwe.ac.uk/bl/research/bristoleconomicanalysis/economicsworkingpapers.aspx
• Related Public URLs: http://www1.uwe.ac.uk/bl/research/bristoleconomicanalysis/economicsworkingpapers.aspx