Firm credit in the euro area: a tale of three crises

Holton, Sarah; Lawless, Martina; McCann, Fergal

doi:10.1080/00036846.2013.824547

Cited by 61 publications

(41 citation statements)

References 13 publications

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“…It has been argued that smaller firms are more opaque because the quality and quantity of information available about the firm is typically very low (Artola and Genre 2011;Berger and Udell 1998). Empirical results confirmed that the size of a firm is an important determinant of accessing external sources of financing, especially bank financing (Artola and Genre 2011;Canton et al 2012;Coluzzi et al 2012;Holton et al 2014;Öztürk and Mrkaic 2014). Furthermore, empirical research reveals that smaller firms hold significantly more shortterm debt than larger firms (Holmes and Kent 1991;Hutchinson 1995).…”

Section: Passive Cluster Variablessupporting

confidence: 62%

Financing patterns of European SMEs – an empirical taxonomy

2016

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PrefaceSmall and medium-sized enterprises (SMEs) are often called the backbone of the European economy, contributing to job creation and economic growth. In 2013, more than 21.5m of SMEs in the European Union made for more than 99% of all non-financial enterprises, employed almost 89m people (67% of total employment), and generated 58% of total added value. However, access to finance is more difficult for SMEs than for larger enterprises, not only during the current financial and economic crisis, but also on a permanent structural basis, due to market imperfections in SME financing (see Kraemer-Eis, Lang and Gvetadze, 2015, for more details).The European Investment Fund (EIF) supports Europe's SMEs by improving their access to finance through a wide range of selected financial intermediaries. To this end, the EIF primarily designs, promotes and implements equity and debt financial instruments which specifically target SMEs. In this role, the EIF fosters EU objectives in support of entrepreneurship, growth, innovation, research and development, and employment.EIF's Research & Market Analysis team has established a research cooperation with the Chair of Management at the University of Trier. This EIF Working Paper is one result of the successful cooperation. A follow-on project, building on the findings of the presented analysis and financially supported by the EIB Institute under the Knowledge Programme, is scheduled to start soon.Even though research in SME financing has strongly increased over the recent years, the financing patterns of SMEs in Europe are still not well analysed. Previous empirical studies have shown that firm-, product-, industry-, and country-specific factors influence the financing of SMEs. However, there are only few studies with a holistic perspective taking into account the interrelationships between different financing instruments and their determinants.The research, presented in this EIF Working Paper, provides an integrative perspective of SME financing patterns by identifying and analysing in detail the use of various financing instruments by SMEs. The findings can support the design and development of SME financing instruments across Europe.We thank the researchers for their important work and the very good cooperation with the EIF. We also thank the participants of a seminar with the researchers, which took place at EIF, as well as the participants of a workshop that took place at the European Central Bank, for fruitful discussions. This EIF Working Paper takes a holistic approach to investigate SME financing patterns in Europe by performing a cluster analysis including 12,726 SMEs in 28 European countries. The results reveal that SME financing in Europe is not homogenous but that different financing patterns exist. The cluster analysis identifies six distinct SME financing types: mixed-financed SMEs, statesubsidised SMEs, debt-financed SMEs, flexible-debt-financed SMEs, trade-financed SMEs and internally-financed SMEs. These SME financing types differ according to the number of fin...

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Section: Passive Cluster Variablessupporting

confidence: 62%

Financing patterns of European SMEs – an empirical taxonomy

2016

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“…The SAFE survey has been widely used to examine the extent of bank credit constraints encountered by European SMEs and the effects these have on firm performance (for example, Ferrando and Griesshaber, 2011;Gerlach-Kristen, O'Connell and O'Toole, 2013;Holton, Lawless and McCann, 2014). In this paper, we move away from the focus on bank credit to examine the broader financing mix used by European SMEs, the level of diversification of funding across different countries and firm types and the extent to which firm characteristics explain which of the possible funding sources are actually used.…”

Section: Survey Descriptionmentioning

confidence: 99%

Financial structure and diversification of European firms

Lawless

OʼConnell²,

O’Toole

2015

Applied Economics

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“…While Holton, Lawless and McCann (2014) showed that links exist between firm credit constraints and aggregate private debt to GDP ratios and the cost of funding for governments and banks, they did not examine the effects of the debt stocks or debt sustainability of the firms themselves Some evidence that debt overhang has negative consequences for investment decisions in larger listed firms has been found by Hennessy (2004). Due to data limitations, the Tobin's Q approach used by Hennessy is difficult to apply to small and medium enterprises (SMEs) as they are generally unlisted.…”

Section: Introductionmentioning

confidence: 99%

“…In this context, the impact of household leverage and indebtedness following financial crises has received attention in the literature (Barrell et al, 2006;Duca et al, 2010), with much less work done on the effect of corporate debt overhang following financial crises. Instead, many firm-level studies have focused on access to credit issues and the impact of new finance availability on investment and employment (Honkapohja, 2014;Holton et al, 2014;GerlachKristen et al, 2014). One noticeable exception is Davis and Stone (2004) who looked at a number of financial crises between 1970 and 1999, finding that investment declines are highly correlated with the debt-to-equity ratio following this type of crises.…”

Section: Introductionmentioning

confidence: 99%

SME recovery following a financial crisis: Does debt overhang matter?

Lawless

OʼConnell²,

O’Toole

2015

Journal of Financial Stability

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Martina Lawless, Brian O'Connell and Conor O'TooleAbstract: The years before the financial crisis saw a dramatic build-up in private debt levels in several countries and this increase was particularly marked in Ireland. In this paper, we look at whether outstanding debt taken out by small and medium sized enterprises in Ireland constrains current performance. We find that the level of debt is generally associated with positive firm performance, facilitating growth and investment. Higher debt burdens (measured as the ratio of debt to turnover), on the other hand, have significant negative effects on all measures of firm performance, in particular investment, employment and indicators of financial distress.Corresponding Author: Martina.Lawless@esri.ie ESRI working papers represent un-refereed work-in-progress by researchers who are solely responsible for the content and any views expressed therein. Any comments on these papers will be welcome and should be sent to the author(s) by email. Papers may be downloaded for personal use only.

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Firm credit in the euro area: a tale of three crises

Cited by 61 publications

References 13 publications

Financing patterns of European SMEs – an empirical taxonomy

Financing patterns of European SMEs – an empirical taxonomy

Financial structure and diversification of European firms

SME recovery following a financial crisis: Does debt overhang matter?

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