Bank Financing and Firm Growth : Evidence from Transition Economies

We examine the relation between financing patterns and firm growth in transition economies. Using a survey dataset covering over 20,000 firms in 30 Eastern European and Central Asian countries from 2002-2014, we find that firms using formal bank finance grow faster than those financed by informal sources. Our results hold after controlling for firm characteristics, country economic development, as well as potential endogeneity. The effect of bank finance on firm growth is more pronounced in non-OECD than OECD countries, indicating the overwhelming importance of bank finance in countries with less developed institutions