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attributable to coefficients is small is itself interesting, because it is evidence of convergence: the relationship between characteristics and financing is similar in TEs and DMEs.

Table V.6 applies the decomposition to privatized and state-owned firms in TEs in 2005. The big difference in financing source in the raw means in the “Total” row is that privatized firms rely much more on bank financing (10.8 percentage points) and less on state financing (-11.7 percentage points) than SOEs. Interestingly, this is not driven by autonomous or unexplained changes – rather, it is attributable to sector and size, and in particular to coefficient rather than endowment effects. Thus the size-bank borrowing relationship is steeper for privatized firms than for SOEs, and inspection of the regressions on which the decomposition is based (not reported here) shows that bigger privatized firms borrow more from banks, but bigger SOEs do not. Most of the difference in state financing, meanwhile, is a coefficient effect driven by the greater likelihood of state-owned manufacturing firms to get state financing than privatized manufacturing firms.

Privatized and new private firms in TEs in 2005 are compared in Table V.7. Here, the main finding is a null result: the structure of financing before and after decomposition is very similar for privatized and new private firms. The biggest difference, not surprisingly, is in the impact of size: privatized firms are, on average, considerably larger than the new private firms in the sample, with a positive impact on their bank financing and a negative impact on financing from retained earnings (both relating to new private firms). The surprise in the table is the absence of a difference in the use of informal financing: privatized and new private firms are roughly equally likely to use it.

The last three tables, V.8-10, show how the structure of financing has evolved over time for the three ownership categories of firms in TEs, and allow us to address directly the issue raised above about the apparent increasing reliance of firms in TEs on retained earnings. In Table V.8, we see that privatized firms have increased financing from banks and decreased it from suppliers, in both cases in ways largely unrelated to observed


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