Bank Credit and Business Networks

Asim Ijaz Khwaja, Atif R. Mian, Abid Qamar
2011 Social Science Research Network  
We construct the topology of business networks across the population of ...rms in an emerging economy, Pakistan, and estimate the value that membership in large yet di¤use networks brings in terms of access to bank credit and improving ...nancial viability. We link two ...rms if they have a common director. The resulting topology includes a "giant network" that is order of magnitudes larger than the second largest network. While it displays "small world" properties and comprises 5 percent of
more » ... ses 5 percent of all ...rms, it accesses two-thirds of all bank credit. We estimate the value of joining this giant network by exploiting "incidental" entry and exit of ...rms over time. Membership increases total external ...nancing by 16.6 percent, reduces the propensity to enter ...nancial distress by 9.5 percent, and better insures ...rms against industry and location shocks. Firms that join improve ...nancial access by borrowing more from new lenders, particularly those already lending to their (new) giant-network neighbors. Network bene...ts also depend critically on where a ...rm connects to in the network and on the ...rm's pre-existing strength.
doi:10.2139/ssrn.1763351 fatcat:pbhyu3filne73idmdxpgkgusby