Empirical assessment of the impact of banking sector development on firm external financing, using the MELR model

Abstract

By combining microeconomic and macroeconomic factors, this paper aims to present a new approach of assessing the impact of the banking sector development on the financing of businesses with loans in some SEE countries. The firm’s probability to have a loan with a commercial bank is assessed taking into consideration it’s characteristics as well as banking sector development indicators, thus considering the supply and demand side, this because according to some studies, the banking sector is not always willing to provide loans to all types of businesses or even certain sectors. In order to reach reasonable conclusions we utilized The Mixed effect logistic regression (MELR), which is appropriate for hierarchically structured data. Econometric results show a positive relationship between banking sector development and the financing of businesses with loans, this tested in several models.