Financing Patterns in Transition Economies: Privatized Versus De Novo Private Firms

Abstract

In this study, we employ Business Environment and Enterprise Performance Survey (BEEPS) database to study 19,521 firms in 30 Eastern European and Central Asian countries for 2002-2014 to examine how firm financing patterns differ across the transition economies for privatized and de novo (originally) private firms and the relevant role of a country’s financial and institutional development. We use a broad spectrum of external finance sources, including bank, equity, supplier, and informal finance. Our results show that privatized firms in ECA countries finance a higher proportion of their investment from external finance, especially bank finance, and a lower proportion of their investment from informal sources in comparing to de novo private firms. We find a strong impact of country-level financial and institutional development on the use of external finance by firms. We also find that better financial and institutional development can level the playing field between privatized and de novo private firms in terms of the use of external finance.