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Are finance constraints hindering the growth of SMEs in Europe?

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  • Wagenvoort, Rien

    () (European Investment Bank, Economic and Financial Studies)

Abstract

This paper examines whether small and mediumsized enterprises (SMEs) in Europe suffer from a structural financing problem that hinders their growth. To this end, we estimate growth-cashflow sensitivities for firms in different size classes. Our results show that the sensitivity of company growth to cashflow rises as company size falls, which suggests that SMEs indeed encountered finance constraints that prevented them from fully exploiting their growth potential during the sample period 1996-2000. However, within each size class, quoted firms - even when small - tend to suffer less from finance constraints than unquoted firms.

Suggested Citation

  • Wagenvoort, Rien, 2003. "Are finance constraints hindering the growth of SMEs in Europe?," EIB Papers 7/2003, European Investment Bank, Economics Department.
  • Handle: RePEc:ris:eibpap:2003_007
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    References listed on IDEAS

    as
    1. Nilsen, Jeffrey H, 2002. "Trade Credit and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 226-253, February.
    2. Fazzari, Steven M & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Investment, Financing Decisions, and Tax Policy," American Economic Review, American Economic Association, vol. 78(2), pages 200-205, May.
    3. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    4. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
    5. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 707-712.
    6. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 819-863.
    7. Hinloopen, Jeroen & Wagenvoort, Rien, 1997. "On the computation and efficiency of a HBP-GM estimator some simulation results," Computational Statistics & Data Analysis, Elsevier, vol. 25(1), pages 1-15, July.
    8. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    Citations

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    Cited by:

    1. Chiara Coluzzi & Annalisa Ferrando & Carmen Martínez-Carrascal, 2009. "Financing obstacles and growth: An analysis for euro area non-financial corporations," Working Papers 0836, Banco de España;Working Papers Homepage.
    2. Allegrezza, Serge & Ben Aoun-Peltier, Leila & Dubrocard, Anne & Larue, Solène, 2013. "Access to finance of independent SMEs in Luxembourg. The consequences of the crisis," MPRA Paper 49330, University Library of Munich, Germany.
    3. Schmieder, Christian & Memmel, Christoph & Stein, Ingrid, 2007. "Relationship lending: empirical evidence for Germany," Discussion Paper Series 2: Banking and Financial Studies 2007,14, Deutsche Bundesbank.
    4. Canton, E.J.F. & Grilo, I. & Monteagudo, J. & van der Zwan, P.W., 2012. "Perceived credit constraints in the European Union," ERIM Report Series Research in Management ERS-2010-001-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    5. Timo Baas & Mechthild Schrooten, 2006. "‘Relationship Banking and SMEs: A Theoretical Analysis’," Small Business Economics, Springer, vol. 27(2), pages 127-137, October.
    6. Erik Canton & Isabel Grilo & Josefa Monteagudo & Peter Zwan, 2013. "Perceived credit constraints in the European Union," Small Business Economics, Springer, vol. 41(3), pages 701-715, October.
    7. Quader, Syed Manzur, 2017. "Differential effect of liquidity constraints on firm growth," Review of Financial Economics, Elsevier, vol. 32(C), pages 20-29.
    8. Bellucci, Andrea & Borisov, Alexander & Zazzaro, Alberto, 2010. "Does gender matter in bank-firm relationships? Evidence from small business lending," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2968-2984, December.
    9. Anton, Sorin Gabriel & Avadanei, Andreea, 2010. "The implications of European retail banking integration on small and medium-sized enterprises financing. An overview," MPRA Paper 28660, University Library of Munich, Germany.
    10. Wagenvoort, Rien J.L.M. & Ebner, André & Morgese Borys, Magdalena, 2011. "A factor analysis approach to measuring European loan and bond market integration," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 1011-1025, April.
    11. Miroslav Mateev & Yanko Anastasov, 2010. "Determinants of small and medium sized fast growing enterprises in central and eastern Europe: a panel data analysis," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 269-295.
    12. repec:eee:touman:v:32:y:2011:i:3:p:667-674 is not listed on IDEAS
    13. Milos Markovic & Michael A. Stemmer, 2017. "Firm Growth Dynamics and Financial Constraints: Evidence from Serbian Firms," Documents de travail du Centre d'Economie de la Sorbonne 17012, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    14. De Maeseneire, Wouter & Claeys, Tine, 2012. "SMEs, foreign direct investment and financial constraints: The case of Belgium," International Business Review, Elsevier, vol. 21(3), pages 408-424.
    15. Wagenvoort, Rien & Ebner, André & Morgese Borys, Magdalena, 2009. "EFR 2009-01 A factor analysis approach to measuring European loan and bond market integration," Economic and Financial Reports 2009/1, European Investment Bank, Economics Department.

    More about this item

    Keywords

    SMEs; Structural financing; Growth-cashflow sensitivities; Financial constraints; growth potential;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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