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Determinants and consequences of SME insolvency risk during the pandemic

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  • Kaya, Orcun

Abstract

The COVID-19 pandemic posed an existential threat to European SMEs' financial resilience with significant consequences for the European economy. Using unique firm-level data on SME financing conditions, this paper proposes a new insolvency risk measure based on survey responses. We show that SME insolvency risk increased, on average, by approximately 21% during the pandemic. Problems with finding customers and the cost of production and labor contributed notably to SME insolvency risk during this period, and SMEs also saw deterioration in their access to finance. Innovation worked as a mitigating factor during the pandemic, and innovative SMEs were more resilient, maintained their client base, and saw favorable access to bank lending. Our results point out that SME innovation can prevent the number of insolvencies from rising significantly in the long term.

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  • Kaya, Orcun, 2022. "Determinants and consequences of SME insolvency risk during the pandemic," Economic Modelling, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322002048
    DOI: 10.1016/j.econmod.2022.105958
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    2. Bana Abdulmajid Akkad & Sulaiman Mouselli, 2023. "Syrian SMEs in Times of COVID-19 Pandemic: Challenges, Adaptation, and Policy Measures," JRFM, MDPI, vol. 16(3), pages 1-16, February.
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    More about this item

    Keywords

    Pandemic; SMEs; Insolvency risk; Access to finance; Innovation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G2 - Financial Economics - - Financial Institutions and Services
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration

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