HKS Faculty Research Working Paper Series
HKS Working Paper No. RWP11-017
March 2011
Abstract
We construct the topology of business networks across the population of firms in an emerging
economy, Pakistan, and estimate the value that membership in large yet diffuse networks brings in
terms of access to bank credit and improving financial viability. We link two firms 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 all firms, it accesses two-thirds of all bank credit. We estimate the value of joining this
giant network by exploiting "incidental" entry and exit of firms over time. Membership increases
total external financing by 16.6 percent, reduces the propensity to enter financial distress by 9.5
percent, and better insures firms against industry and location shocks. Firms that join improve
financial access by borrowing more from new lenders, particularly those already lending to their
(new) giant-network neighbors. Network benefits also depend critically on where a firm connects
to in the network and on the firm's pre-existing strength.
Citation
Khwaja, Asim Ijaz, Atif Mian, and Abid Qamar. "Bank Credit And Business Networks." HKS Faculty Research Working Paper Series RWP11-017, March 2011.