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Young Smes Insolvency.Theoretical Considerations And Policy Actions

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  • Sebastian Ion Ceptureanu

    () (Bucharest University of Economic Studies)

Abstract

Compared with large firms, young SMEs in general are more leveraged and reliant on bank financing and have significantly higher chances to experience insolvency. High SME insolvency reflect in part the deep and prolonged recession that hit young SMEs hard, both through the collapse in domestic demand and the tightening of credit conditions. Despite the declines in sovereign yields, SME borrowing rates have declined by much less and remain high compared with those for large firms. SMEs present a particular set of challenges for restructuring and resolution. Given the large number of SMEs and their small sizes, lower reporting requirements, and heavy reliance on collateral, SME loan restructuring is more costly and riskier for banks than for large firms. If left unaddressed, the problems of SME indebtedness and insolvency pose a risk to the recovery and financial stability. High corporate debt and non-performing loans represent a significant drag on investment, as credit-constrained firms cut back on spending to repay debt. Young SMEs in particular, given their high leverage and lack of alternative financing, are more vulnerable to a growth slowdown or financial distress. SME weakness can in turn undermine banks’ asset quality and profitability, constraining banks’ ability to provide credit.

Suggested Citation

  • Sebastian Ion Ceptureanu, 2015. "Young Smes Insolvency.Theoretical Considerations And Policy Actions," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 120-126.
  • Handle: RePEc:ddj:fserec:y:2015:p:120-126
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    File URL: http://www.rce.feaa.ugal.ro/images/stories/RCE2015/Management-Marketing/SebastianCeptureanu.pdf
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    References listed on IDEAS

    as
    1. Sally Chen & Minsuk Kim & Marijn Otte & Kevin Wiseman & Aleksandra Zdzienicka, 2015. "Private Sector Deleveraging and Growth Following Busts," IMF Working Papers 15/35, International Monetary Fund.
    2. Bergljot B Barkbu & Pelin Berkmen & Pavel Lukyantsau & Sergejs Saksonovs & Hanni Schoelermann, 2015. "Investment in the Euro Area; Why Has It Been Weak?," IMF Working Papers 15/32, International Monetary Fund.
    3. Rajkamal Iyer & José-Luis Peydró & Samuel da-Rocha-Lopes & Antoinette Schoar, 2014. "Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007--2009 Crisis," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 347-372, January.
    4. Federico Cingano & Francesco Manaresi & Enrico Sette, 2016. "Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel," Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2737-2773.
    5. Sebastian Ion CEPTUREANU & Eduard Gabriel CEPTUREANU & Filip ZGUBEA & Alina TUDORACHE, 2012. "Economic Survey on Knowledge Based Management in Romanian Companies," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(2), pages 325-336, May.
    6. Ion POPA & Camelia Elena CIOLAC & Sebastian CEPTUREANU & Eduard CEPTUREANU, 2010. "Romanian Banks – Romanian SMEs: A Mutual Business Relationship," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 11(2), pages 338-349, May.
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    Keywords

    young SMEs; insolvency; start-ups;

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