State-business relations and access to external financing: evidence from Russia

Abstract

Contractual relations of firms with a state may give lenders a positive signal and facilitate access to debt. This paper studies the impact of public procurement contract on firms access to debt using an extensive survey of Russian manufacturing firms combined with accounting and procurement data. It shows that earnings from state-to-business contracts increase the short-term debt twice larger than revenue from private contracts. The long-term debt is not affected by public contracts differently compared to private contracts. The debt sensitivity to public contracts is four times larger for politically connected firms, though it is still positive and significant for non-connected firms. The paper concludes that political connection does not entirely suppress the beneficial access to debt the public contracts create.