Loans to small firms are associated with relationship lending technologies that may be better supported by smaller banks. Whether competition helps or hinders small firm access to finance may depend on the size distribution of banks and the ways in which banks compete. Using cross-country data from surveys of firms and banks and a measure of contestability evidence is produced for a non-linear relationship between competition and the use of bank financing by small firms. While at very low levels of contestability an increase in contestability increases small firm use of bank finance, for most observations of contestability in the sample, an increase in contestability produces the opposite result. This also holds for medium size firms outside of manufacturing. Medium size firms in manufacturing exhibit a non-linear relationship between competition and use of bank credit, but in an opposing direction. Small firms are also more likely to use bank financing the higher is the small bank market share. However, neither the size distribution of banks nor the level of profitability of lending is shown to further influence the effect of contestability on small firm use of bank lending.

This study explores overseas expansion of firms from a small emerging market, Uruguay. The study identifies and seeks to explain a positive correlation between exports as a share of total sales and a concentration of exports to further distant countries. Empirical tests show that Uruguayan firms were more heavily involved in exporting when they were larger, had broader international experience, adapted their products to foreign markets, were in the textile and clothing sector, and when they had greater exports to the far abroad. A focus on customer service relates to export expansion once exports to the far abroad had achieved a certain threshold.

Surveys taken in Bulgaria in both 2008 and 2009 show that people who had experienced a loss during an earlier banking crisis are significantly more likely to expect a new crisis. This result holds despite more than a decade between the earlier crisis and the surveys as well as the dramatically improved performance and stability of both the financial sector and the economy in the meantime. The loss experience also affects behavior. People who experienced a loss in the earlier crisis were more likely to have withdrawn funds from bank deposits in the midst of the international banking crisis in 2009.

Survey data from Bulgaria show that people who had experienced a loss during a banking crisis are significantly more likely to expect a new crisis. This result holds despite 12 years between the earlier crisis and the survey, and the dramatically improved performance of the financial sector and the economy in the meantime. However, we find that earlier experiences affect expectations only for less informed individuals. Individuals who are more informed about the economy are unaffected by their prior experiences.

We expand the traditional tax incentive redundancy argument by investigating the implications of allocating incentives primarily to firms that would have invested even in the absence of special tax treatment. Incorporating government revenue constraints, pliable tax officials, endogenous tax liabilities, and firms with heterogeneous before-tax returns, we show that tax incentives, if given to the “wrong” firms, are not only ineffective in stimulating FDI, but result in a form of tax shifting and may reduce FDI. Data from countries of the former Eastern Bloc suggests that tax incentive schemes have significantly negative impacts on FDI in countries that poorly target firms.

In this study we examine the connection between the varied experiences of the transition countries in attracting FDI and their diverse experiences in transforming their tax structures to be consistent with a market economy. In particular, we study whether complexity and uncertainty in their tax laws have deterred foreign direct investment by increasing transaction costs, the compliance burden and the unpredictability of tax liabilities. Our results indicate that complexity and uncertainty, in the sense of multiple tax rates, indeterminate language in the tax law, and inconsistent changes in the tax laws have a significant negative effect on inward foreign direct investment.

AbstractFinancial crises in emerging markets are a reality of doing business in these countries in the early twenty‐first century. Managers can gain some perspective on this problem from experiences of firms in crises that occurred in Mexico, Thailand, and Russia during the 1990s. We show how firms have taken steps to protect themselves against financial crises and to deal with the crises once underway in these three countries. Such strategies are divided into frameworks of: short‐term, immediate responses to a crisis; intermediate steps during the period of economic downturn; and long‐term continuing responses for operating in emerging markets. © 2002 Wiley Periodicals, Inc.

Market power among banks may encourage relationship lending technologies, alleviating information asymmetry problems. Because such relationship lending is relatively more important for small businesses, this effect will be amplified for them. However, bank resources must be sufficient t cover the additional costs associated with this lending technology. Using cross-country data from surveys of firms and banks we find that market power among banks leads to increased use of bank financing and that this effect is higher for small firms. In addition, we find important interactions with other banking sector variables. In particular we find that higher interest margins and overhead costs are positively associated with firm use of bank financing. When interest margins are high, banks can afford the resources needed to effectively conduct relationship lending. In addition, small firms benefit when banks use more resources as reflected in higher bank overhead.

Market power among banks may encourage relationship lending technologies increasing firm access to credit. However, bank resources must be sufficient to cover the additional costs associated with this lending technology. Usury laws and other regulations may prevent banks from being able to charge sufficient rates. Using cross-country data from surveys of firms and banks we find increased use of bank financing with more bank market power, higher interest rates and higher overhead costs with important interactions among these variables. Amplified results for small firms provide evidence that effect is from relationship lending and that interest rate spreads must be sufficient to support its higher costs.