Business Environment And Enterprise Performance Survey Research Articles

The impact of corruption and ownership on the performance of firms in Central and Eastern Europe

This article investigates how the efficiency of the business environment and corruption (informal payments and state capture) affect the microeconomic performance of firms. The novelty of the study is to look at the interaction of these effects with firm ownership. We use firm-level micro data collected by the Business Environment and Enterprise Performance Survey (BEEPS) for 27 transition countries for 2002–09. Among other data, BEEPS collects information on different forms of corruption at the firm level and firm ownership. We find the somewhat surprising result that private firms (domestic and foreign-owned) are more involved in both informal payments and state capture. Our results also reveal that foreign-owned firms that are involved in informal payments are likely to benefit from these corrupt practices. On the other hand, state-owned firms are more likely to experience negative effects of involvement in corruption on productivity growth. After 2004 involvement of firms in corrupt practices diminished and their negative impact on firm performance declined, indicating an improvement in the stability of the business environment and law enforcement.

Does business networking boost firms’ external financing opportunities? Evidence from Central and Eastern Europe

This article argues that networked firms are likely to have an advantage in securing bank finance in countries with weak legal and judicial institutions since it helps banks and other financial institutions to minimize the underlying agency costs of lending. An analysis of recent Business Environment and Enterprise Performance Survey (BEEPS) data from 15 Central and Eastern European (CEE) countries lends some support to this hypothesis. Even after controlling for other factors, firms affiliated to Business Associations (BA) are more likely to secure bank finance. Further, the importance of business networking is particularly evident among firms who borrow from private domestic banks, as these new banks attempt to minimize costs of adverse selection. There is also some confirmation that the significance of networking disappears with improvement in institutional quality.

Impact of Private Incidence of Corruption and Firm Ownership on Performance of Firms in Central and Eastern Europe

The paper investigates how efficiency of business environment and corruption (informal payments and state capture) affect the microeconomic performance of firms. The novelty of the paper is to look at these effects in the interaction with the firm ownership. We use firm-level micro data collected by the Business Environment and Enterprise Performance Survey (BEEPS) for 27 transition countries for the period 2002-2009. Among other data, BEEPS collects also information on different corruption activities at the firm-level and firm ownership. We find somehow surprising results that private firms (domestic and foreign owned) are more involved both into informal payments as well as state capture activities. Our results also reveal that foreign owned firms that are involved in informal payments are likely to benefit from these corruption practices. On the other side, state owned firms are more likely to experience negative effects of involvements in corruption practices on productivity growth. After 2004, involvement of firms in corrupt practices diminished, and that their negative impact on firm performance dissipates indicating an improvement in the stability of business environment and law enforcement.

Competition and Innovation in Product Quality: Theory and Evidence from Turkey

This paper examines how degree of competition affects incentives to innovate in product quality in a symmetric Cournot oligopolistic model. We model product quality in a quality-ladder framework, and find an inverted-U shaped relationship between the number of firms in an industry and R&D efforts in innovation. We test this theoretical prediction using Turkish firm-level data from the Business Environment and Enterprise Performance Survey (BEEPS) and find strong support for it.

Do Institutions, Ownership, Exporting and Competition Explain Firm Performance? Evidence from 26 Transition Countries

We analyze a large stratified random sample of firms that provide us with measures of performance and each firm’s top manager’s perception of the severity of business environment constraints faced by his/her firm. Unlike most existing studies that rely on external and aggregated proxy measures of the business environment, defined to include legal and institutional features, we have information from each surveyed firm. Specifically, we use the 2005 and 2002 Business Environment and Enterprise Performance Survey (BEEPS) to assess the effect on performance of ownership, competition, export orientation and the business environment of the firm. We employ a variety of approaches to deal with the problem of omitted variables, errors in variables and endogeneity that plague studies in this area. We find that foreign ownership and competition have an impact on performance – measured as the level of sales controlling for inputs. Export orientation of the firm does not have an effect on performance once ownership is taken into account. When we analyze the impact of perceived constraints, we show that few retain explanatory power once they are introduced jointly rather than one at a time, or when country, industry and year fixed effects are introduced. Indeed, country fixed effects largely absorb the explanatory power of the constraints faced by individual firms. Replicating the analysis with commonly used countrylevel indicators of the business environment, we do not find much of a relationship between constraints and performance. Our analysis brings into question an important part of the conventional wisdom in this area. It indicates that country fixed effects, reflecting timeinvariant differences in the business environment but also other factors, matter for firm performance, but that differences in the business environment observed across firms within countries do not. Moreover, the limited firm- and country-level variations in the business environment over time do not appear to affect performance either. This suggests that the effect of business environment on performance and the analysts’ ability to identify this effect are more limited than has been assumed to date.

Entrepreneurs' gender and financial constraints: Evidence from international data

This paper examines whether financial institutions discriminate against entrepreneurs on the basis of gender. Using the cross-country Business Environment and Enterprise Performance Survey (BEEPS), we find some evidence that, compared to male-managed counterparts, female-managed firms are less likely to obtain a bank loan. In addition, our analysis suggests that female entrepreneurs are charged higher interest rates when loan applications are approved. There is also some evidence that the gender differences in access to financing vanish with the level of financial development, which is consistent with Becker-type discrimination. The results of our analysis are robust to a number of specification checks. Journal of Comparative Economics37 (2) (2009) 270–286.

Determinants and consequences of soft budget constraints An empirical analysis using enterprise‐level data in transition countries1

AbstractThis paper presents empirical work grounded in the soft budget constraint (SBC) literature. A loan is soft when a bank cannot commit the enterprise to hold to a fixed initial budget and/or the timing of repayment. Using data collected by the European Bank for Reconstruction and Development (EBRD) (Business Environment and Enterprise Performance Survey (BEEPS), 2002) in 26 transition economies, we analyze the determinants of managers’ expectations of having a soft loan. In particular, we find that managers’ expectations are lower when the initial financing requires collateral, and higher for larger firms and when firms had recently experienced financial distress. We also provide evidence that managers’ expectations influence their price responsiveness.

Entrepreneurship and SME growth: evidence from advanced and laggard transition economies

PurposeThis paper seeks to examine the impact of firms' technological capability and other firm and environmental characteristics on the growth of small and medium‐sized enterprises (SMEs) in six transition countries at different stages of transition. It compares three advanced Central Eastern European countries (Poland, Hungary, and Czech Republic) with three laggard countries in South Eastern Europe (Albania, Macedonia, and Serbia and Montenegro).Design/methodology/approachA theoretical framework is proposed based on three groups of factors influencing SME growth: innovative and entrepreneurial features of the firm, characteristics of the firm, and those related to the institutional/business environment. Subsequently this paper uses the Business Environment and Enterprise Performance Survey (BEEPS) conducted by the World Bank/EBRD in 2002 and 2005 to test a number of hypotheses regarding the determinants of SME growth.FindingsThe two groups of countries have similarities and differences: both display similar trends with respect to the growth process; both are affected by entrepreneurship activities positively; but the institutional barriers affecting the two groups are somewhat different. It was also found that, despite the growing importance of SMEs in all transition economies, they still face many institutional barriers – which have prevented them from making a greater contribution.Research limitations/implicationsThe key limitations of the empirical investigation are the qualitative nature of survey data and the shortcomings associated with self‐declaration of entrepreneurs. It is important for future research to complement this line of research with panel data.Originality/valueThis cross‐country study extends current understanding of the determinants of SME growth in various stages of transition economies based on a unique data set. It also provides some implications for policymakers as well as entrepreneurs/managers for improving the growth of SMEs.

Determinants of innovation: evidence from Czech Republic, Poland and Hungary

This paper uses binary choice model to examine the determinants of product and process innovation in three advanced economies in Central Eastern Europe (CEE): Czech Republic, Poland and Hungary. The paper is based on a Business Environment and Enterprise Performance Survey (BEEPS) conducted by European Bank for Reconstruction and Development (EBRD) in 2002 and 2005. Evidence supports Schumpeterian hypothesis that firm size has positive effect while firm age has negative effect on innovation. Foreign ownership, exporting status and organisational flexibility exert positive impact on firm innovation activities. Regarding, external conditions, we find that firms operating in concentrated market and face change in the identity of the main customers are more prone to innovation.

Policy Uncertainty in Hybrid Regimes - Evidence from Firm Level Surveys

Abstract: Cross-national surveys suggest that regulatory and policy uncertainty is an important constraint on investment in developing countries. Yet there has been little direct empirical investigation of the sources of this uncertainty. This paper presents evidence of an inverted U-shaped relationship between firms' perceptions of policy uncertainty and political regime type. Firms in hybrid regimes report higher levels of concern over policy uncertainty than those in either strict authoritarian regimes or liberal established democracies. We argue that the explanation lies with a combination of polarized political competition and limited access to credible information and test our theory using survey data of around 10,000 firms from the World Bank-EBRD's Business Environment and Enterprise Performance Survey (BEEPS) from 27 post-communist countries and five OECD countries. Methodologically, we propose a means of controlling for reporting and suppression bias in these surveys when an anchoring vignette is not available.

Lithuania’s Anti-corruption Policy: Between The “West” And The “East”?

Corruption is still a serious problem in Lithuania as well as in the majority of new European states. It reveals itself not only through regular internal corruption scandals, but is also exposed in various international surveys, such as Transparency International’s Corruption Perception Index (CPI), or the World Bank’s Business Environment and Enterprise Performance Survey (BEEPS). In recent years, the European Commission in its annual reports on the progress achieved by candidate countries in the process of European integration expressed concern about the inefficiency of the real anti-corruption policy in all those states.

Far from Home: Do Foreign Investors Import Higher Standards of Governance in Transition Economies?

Based on the Business Environment and Enterprise Performance Survey (BEEPS) of firms in transition countries, which unbundles corruption to measure different types of corrupt transactions and provide detailed information on the characteristics and performance of firms, we find that: i) corruption reduces FDI inflows and attracts lower quality investment in terms of governance standards; ii) in misgoverned settings, FDI firms may magnify the problems of state capture and procurement kickbacks, while paying a lower overall bribe burden than domestic firms; iii) FDI firms undertake those forms of corruption that suit their comparative advantages, generating substantial gains for them and challenging the premise that they are coerced, which makes it difficult to develop effective constraints on such behavior; and, iv) transnational legal restrictions to prevent bribery had not led to higher standards of corporate conduct among foreign investors by the year 2000. Rather than being construed as a case against foreign investment; we argue that state capture is created and maintained through restrictions on competition and entry in strategic sectors. Thus, enhancing competition by attracting a wider, more diverse set of FDI firms is critical to the broader strategic framework of fighting state capture and corruption.

Measuring Governance and State Capture: The Role of Bureaucrats and Firms in Shaping the Business Environment

Recent studies have focused on the characteristics and policies of the to explain the extent and causes of corruption, with little attention paid to the role played by firms. Consequently, the links between corporate governance and national governance have been unexplored. This paper summarises the results of the Business Environment and Enterprise Performance Survey (BEEPS) across 20 transition economies, providing an assessment of governance and from the perspective of firms. The BEEPS is part of the global World Business Environment Survey being carried out by the World Bank. The survey design permits an in-depth empirical analysis of governance and corruption, unbundling governance into its component dimensions. This allows a more detailed quantitative assessment of corruption, a more nuanced understanding of the causes of the problem and as a result a stronger foundation for policy advice. Particular attention is paid to state capture by parts of the corporate sector (i.e. the propensity of firms to shape the underlying rules of the game including purchase of legislation and court decisions). The survey also provides measures of other dimensions of grand corruption such as that related to public procurement. Typically, crosscountry surveys suffer from a potential if firms have a tendency to systematically overor underestimate the extent of problems in their own country. We implement a simple method for evaluating the extent of this country perception bias and find little evidence pointing to such in the BEEPS. JEL Classification Number: D72, P26