Development of the Financial Sector Infrastructure in an EU CandidateCountry (The Case of Estonia)

In the 1990s, most of the Central and Eastern European countries (CEECs) went through radical liberalization and adopted large-scale economic and political reform programs. These programs included almost complete price, trade and capital movement liberalization, macroeconomic stabilization, currency reform, and small-scale and large-scale privatization. What is the role of the development of a legal and institutional infrastructure along with these radical changes in society and the economy? The first part of this paper is based on the results of an interview study of entrepreneurs and managers in Estonia undertaken in 1998 and in Estonia, Russia, Finland and Sweden in 2000 in order to obtain their view of the behavior of government agencies, lawmaking procedures and the operation of law enforcement mechanisms. The second part of this paper presents summary results from interview surveys of Estonian manufacturing firms undertaken from 1994-2000. The surveys were designed to quantitatively measure the state of and changes in the Estonian business environment, focusing on the key aspects of financial contractual relationships of Estonian manufacturing firms as well as regulation and dispute resolution mechanisms. Among the observations it is noted that government regulations do not seriously affect business decisions regarding the operation, expansion or closing down of Estonian manufacturing firms. A second observation is that the Estonian court system is perceived as inadequate for resolving a substantial number of disputes and conflicts among economic agents although legislation exists. Most firms rely on mechanisms of self-enforcement when possible. Journal of Economic Literature Classification numbers: K42, K49, G18, G30 Keywords: business environment, corporate financial relationships, enterprise restructuring, corruption, law making procedures, law enforcement

Estonian Banking Sector Performance Analysis Using Malmquist Indexes And DuPont Financial Ratio Analysis

Banks and other financial institutions are a unique set of business firms whose assets and liabilities, regulatory restrictions, economic functions, and operating make them an important subject of research. Banks performance monitoring, analysis and control needs special analysis in respect to their operation, productivity and performance results from the viewpoint of different audiences, like investors/owners, regulators, customers/clients, and management themselves. In this paper, productivity change in Estonian banking is estimated using the Malmquist productivity index. The data used in this study covers the period from 1999 to 2002. One purpose of this research is to introduce the Malmquist productivity index, which is first used for productivity analysis of Estonian banks. The present study shows that Estonian banks experienced average a 25.6 percent annual productivity growth rate during 1999-2002, what was the result of technological progress. Generally, all Estonian banks have increased productivity as a result of technological progress on this period. Some historical notes on the development of the Estonian banking system and the capital structure of banks are presented in this article. The usage of a modified version of DuPont financial ratio analysis is discussed also in the article. Empirical results of the Estonian commercial banking system performance analysis are presented in the article (1994-2002)

Development of the financial sector in globalising world: An emerging market economy case

La integración económica genera las precondiciones y causa la internacionalización de los bancos y de los servicios financieros globales. La entrada de bancos extranjeros en los mercados de los países de Europa central y oriental (PECOs) ha sido rápida y significativa. Esta ponencia presenta algunos resultados empíricos sobre los motivos de la entrada de bancos extranjeros, sus actividades y su actuación en Estonia, una pequeña economía abierta que se encuentra a las puertas de unirse al mercado financiero integrado de la Unión Europea. Se presentan y analizan algunos resultados de la investigación realizada en 2001 sobre una muestra de pequeñas y medianas empresas y otros clientes particulares de bancos comerciales de Estonia controlados por inversores extranjeros. Los principales objetivos de la investigación fueron: 1) identificar las razones más importantes en la elección del banco y la intensidad y tipo de contactos de los clientes y sus bancos; 2) evaluar la calidad y amplitud de los servicios y productos bancarios; 3) evaluar la creación de valor en el proceso de relaciones entre los clientes y bancos. Los resultados de la investigación conducen a algunas conclusiones sobre los resultados del proceso de globalización del sector financiero de una pequeña economia abierta

Operation of Business Supporting Networks: Evidence from an EU Candidate Country

Business firms operate in a certain environment in which they interact with one another, with individuals, governmental organizations, financial institutions and various other interest groups. Operation of respective social networks (both voluntary and private market-determined) may have an important effect to the overall business environment. This paper presents and analyses some results of the special sample survey of Estonian firms undertaken in 1994-2000. Our main attention in this paper is paid to business supporting services provided by various institutions and to the operation of disputes’ resolution mechanism, using social networks concept – other related issues see Vensel and Wihlborg (2001). It is argued that the state enforcement mechanism is working weekly in the still unstable legal environment and firms have to use different self-enforcement mechanisms (through social networks) to resolve disputes. Social networks are also used for obtaining additional financing of the business. The success of the operation of social networks depends on the government economic policy.social networks, social capital, trust, business supporting services, disputes resolution mechanism, value creation, enforcement mechanism.