SMES, FDI and financial constraints
AbstractThis paper explores the problems experienced by small and medium-sized enterprises (SMEs) with international ambitions in gaining access to debt and equity finance for foreign direct investment (FDI) projects. We develop several arguments why such small businesses are expected to face severe financing constraints for foreign investments and provide an explorative empirical analysis of these issues for a sample of thirty-two Belgian SMEs. We find that the market of FDI finance for SMEs is subject to considerable capital market imperfections. The information problems, lack of collateral, the home bias of financiers and the capital gearing method used by banks to evaluate small firms' foreign projects give rise to financial constraints. The FDI finance gap hinders SMEs in their internationalization strategy and negatively affects their economic performance.
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Bibliographic InfoPaper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2007-25.
Length: 51 pages
Date of creation: 01 Oct 2007
Date of revision:
small business financing; SMEs; FDI; internationalization; financing constraints;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-03 (All new papers)
- NEP-ENT-2007-11-03 (Entrepreneurship)
- NEP-PPM-2007-11-03 (Project, Program & Portfolio Management)
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- Saeed Abubakr & Franco Esposito, 2012. "Bank concentration and financial constraints on firm investment in UK," Studies in Economics and Finance, Emerald Group Publishing, vol. 29(1), pages 11-25, March.
- Mariasole BannÃ² & Marika Vezzoli & Maurizio Carpita, 2011. "Disentangling the Innovation - Internalization Process Through a Structural Equation Model," ERSA conference papers ersa11p195, European Regional Science Association.
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