Financial system development and financing patterns of firms: Evidence from Ukraine*

Abstract We examined the financial system development of Ukraine from 2010 to 2016 using integral indicator. In addition, we explored the effect of the financial system development on the financing of firms in Ukraine. The results of the study displayed a negative tendency in the development of the Ukrainian financial system from 2010 to 2016. The regression model revealed that the integral indicator of the financial system’s development is substantially interconnected with the average rate of hryvnia to the US dollar. The results of the paper showed that the financial structure of Ukrainian firms changed significantly during the analyzed period. The share of external financing rose extremely not due to an increase in bank loans but due to informal sources. Despite the general negative changes in the financial system development and financing patterns, the study did not find arguments to support the hypothesis of the existence of a strong statistical relationship between them. Instead, we identified additional significant sources of financing for firms that are not related to the development of the financial system and those that do not meet traditional notions of financing patterns.