Determinants of SME Finance: Evidence from Three Central European Countries

Abstract

This paper explores the determinants of access to finance for small and medium enterprises (SMEs) in the context of three Central European countries: Czech Republic, Slovak Republic, and Hungary. The data set of the research is obtained from the BEEPS survey, which is conducted by the World Bank and the European Bank for Reconstruction and Development. This paper empirically analyses firms not only from the SMEs point of view, but also shows results for micro, small and medium enterprises separately. Additionally, we have analysed the determinants of access to finance for SMEs at each country level for an in-depth understanding of country-level variations in SME financing. The results indicate that micro firms and firms owned and operated by women are experiencing a shortage of credits from banks. On the other hand, we found a positive relationship between the pledge of collateral and access to finance. With respect to the medium firms, we found evidence that innovative firms have a larger amount of credit from banks. The empirical results also suggest that the loan size increases as the interest rates increase in particular for SMEs on the whole and for micro-firms, although the interest rate is in a negative relationship with the loan size in Czech Republic.

Impact of Selected Characteristics of Smes on the Capital Structure

“…Reasons are related to financial risks as well as access to foreign sources of financing. This corresponds to the results of the analysis Rahman et al (2017), who found that not only small but also short-term firms are more vulnerable to limited access to bank finance. That limited access is linked to the risk of default, which also affects interest rates.…”

“…This indicates some gender discrimination in the credit market within advanced European countries (e.g. in Felicio & Galindo Villardón, 2015) In the case of medium-sized companies, it has been confirmed that innovative businesses have received more loans from banks (Rahman et al, 2017;Tvaronavičienė, 2016). The economic position of SMEs in countries is gradually increasing.…”

“…A large part of the study focuses on the SME segment, which is sensitive to changes in economic processes in every economy (Kurschus, Sarapovas, & Pilinkiene, 2017;Kliestik, Misankova, Valaskova, & Svabova, 2018;Balcerzak, Kliestik, Streimikiene, & Smrčka, 2017). Rahman, Twyeafur Rahman, and Belas (2017) in their study examine the determinants affecting SME and access of SME in the Czech Republic, Slovakia and Hungary. Their database consisted of 15,883 companies, and was obtained from the BEEPS survey managed by the World Bank and the European Bank for Reconstruction and Development.…”

“…The economic position of SMEs in countries is gradually increasing. According to Rahman et al (2017), by analysing 76 developed and developing countries, it was found that SMEs provide about 60% of employment in the manufacturing sector. Small and medium-sized businesses experience banking discrimination because of their opacity (Baños-Caballero, García Teruel, & Martínez-Solano, 2016).…”

“…Loan securing has a positive impact on the size of credit for all businesses. Rahman et al (2017) state that not only small but also short-term firms are more vulnerable to limited access to bank finance, which is associated with lower transparency of information. Banks are limited in lending to younger companies, and because of the future, the survival rate of younger companies is much lower than that of older firms.…”