Academic journal article Journal of International Business Research

Financial System and Business Activity in Bulgaria, Czech Republic, Hungary, Romania, and Slovakia

Academic journal article Journal of International Business Research

Financial System and Business Activity in Bulgaria, Czech Republic, Hungary, Romania, and Slovakia

Article excerpt


Study Countries

In 2004 ten countries were admitted to the European Union and in January 2007 two additional countries were admitted. Each of the new EU members has a unique background, culture, and economic outlook, but each has now committed itself to economic convergence with the EU. Part of the impetus for joining the EU is to improve domestic economic conditions by creating business relationships with the more prosperous current EU members. For most of the new EU countries the past 15 years have brought dramatic internal economic changes as countries have moved away from a command economy and toward a market system. Gaining access to the increasingly large EU market is viewed as an economic step forward.

The newest EU members, Bulgaria and Romania, were delayed as entrants because they needed additional time to adapt to EU Rules and Policies. The delay has put them behind neighboring countries in terms of building relationships to the older countries of the EU. Bulgaria and Romania are on the southern borders of the EU and goods shipped from these two countries most likely will have to go through one or more of the other three countries in the current study. Hungary, the Czech Republic and Slovakia have been part of the EU since 2004. Since they border larger EU markets, these countries have gained employment by building parts using low cost labor and shipping to existing firms in other EU countries. Shipping costs are lower than costs from countries further away. Firms in the two new countries will have to update manufacturing facilities and cut costs to follow strategies similar to the 2004 entrants. Availability of low cost WC will have a strong influence on their ability to compete.

The BEEPS Database

The European Bank for Reconstruction and Development (EBRD) and the World Bank (WB) have developed a methodology for studying the performance of transition economies such as the new EU entrants. The Business Environment and Enterprise Performance Survey (BEEPS I 1999) was developed to capture a wide variety of data from firms in countries undergoing political and economic transition. Data was collected on numerous aspects of business performance including sources of financing, corruption and business relationships with government.

In 2002 the EBRD and WB developed a new version of the survey (BEEPS II, 2002) which was administered to managers and business owners in 23 transition economies in Eastern Europe and in new states created by the break up of the former Soviet Union. The purpose was to gain business leaders' perceptions about the "quality of governance, sources of financing, the investment climate and the competitive environment." The BEEPS study also collected information about firm characteristics.

The BEEPS data base covers several subject areas from business regulation to the rule of law. The current study used questions from the section of BEEPS called Financial Systems. In this section various issues concerning WC were explored including accounting systems, sources of financing, interest rates and loan terms, arrears, collateral requirements, subsidies, and the payment systems used in each country. Within each of these issues several questions were asked to gain understanding of the situation. In the current study, the authors selected questions related to the availability and cost of working capital. Appendix A lists the questions from the BEEPS survey used in the current study.


Data from the 2002 World Bank BEEPS study were analyzed by country using One-Way Analysis of Variance with the country as the single factor. One-Way Analysis of Variance (ANOVA) is used to test for differences between means when only a single factor, such as country, is used to explain mean value differences. When appropriate, midpoint values for response ranges were used as the data points. …

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