Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers Vol. 28 No. 1

SME’s Credit Conditions during the Financial Crisis in Europe

DOI: https://doi.org/10.18267/j.pep.672

[full text (PDF)]

Yaseen Ghulam

This study examines the role of firm-specific, macroeconomic, banking and financial environment factors in determining whether they were able to access external finance during the global financial crisis. Heckman’s selection approach is used to model the demand and supply of credit in the euro area during and after the financial crisis period. We conclude that since 2011, when the rejection probabilities for external credit applications peaked, the chances of obtaining credit have improved. However, young and small firms are still more likely to have their credit applications rejected. A decrease in government support such as guarantees increases the probability of rejection, as does a reduction in firms’ own capital and a worsening credit history. Among the bankspecific factors, an increase in banks’ equity capitalization reduces the rejection probability, while an increase in the cost of borrowed funds and a decrease in the competition levels raise the rejection probability. The legal structure to deal with insolvency disputes and the development of the credit information market have a significant bearing on credit availability, as we find that an increase in the time to resolve insolvencies and a reduction in adverse selection problems by credit information sharing increase the credit rejection probabilities.

Keywords: credit, financial crisis, small and medium enterprises, supply and demand

JEL Classification: G20, G21, G23, G28, L11

References:

Albareto, G., Finaldi Russo, P. (2012). Financial Fragility and Growth Prospects: Credit Rationing during the Crisis. Bank of Italy. Occasional Paper No. 127, https://doi.org/10.2139/ssrn.2159210

Anderson, J., Stallings, J. (2013). Restoring Financing and Growth to Europe’s SMEs. Institute of International Finance.

Artola, C., Genre, V. (2011). Euro Area SMEs under Financial Constraints: Belief or Reality? CESifo Monetary Policy and International Finance. Working Paper No. 3650.

Beck, T., Demirgüç-Kunt, A., Laeven, L., Maksimovic, V. (2006). The Determinants of Financing Obstacles. Journal of International Money and Finance, 25(6), 932–952, https://doi.org/10.1016/j.jimonfin.2006.07.005

Beck, T., Demirguc-Kunt, A. (2006). Small and Medium-Size Enterprises: Access to Finance

as a Growth Constraint. Journal of Banking and Finance, 30(11), 2931–2943, https://doi.org/10.1016/j.jbankfin.2006.05.009

Beck, T., Demirgüç-Kunt, A., Maksimovic, V. (2008). Financing Patterns around the World:

Are Small Firms Different? Journal of Financial Economics, 89(3), 467–487, https://doi.org/10.1016/j.jfineco.2007.10.005

Beck, T., Demirgüç-Kunt, A., Singer, D. (2013). Is Small Beautiful? Financial Structure, Size and Access to Finance. World Development, 52, 19–33, https://doi.org/10.1016/j.worlddev.2013.05.014

Bernanke, B. S., Gertler, M. (1995). Inside the Black Box: the Credit Channel of Monetary Policy Transmission. National Bureau of Economic Research. Cambridge Working Paper No. 5146. https://doi.org/10.3386/w5146

Brown, M., Ongena, S., Popov, A., Yeşin, P. (2011). Who Needs Credit and Who

Gets Credit in Eastern Europe? Economic Policy, 26(65), 93–130, https://doi.org/10.1111/j.1468-0327.2010.00259.x

Canales, R., Nanda, R. (2012). A Darker Side to Decentralized Banks: Market Power and Credit Rationing in SME Lending. Journal of Financial Economics, 105(2), 353–366, https://doi.org/10.1016/j.jfineco.2012.03.006

Carbo-Valverde, S., Rodriguez-Fernandez, F., Udell, G. F. (2013). Trade Credit, the Financial Crisis, and SME Access to Finance. 26th Australasian Finance and Banking Conference, https://doi.org/10.2139/ssrn.2307246

Casey, E., O’Toole, C. M. (2014). Bank Lending Constraints, Trade Credit and Alternative

Financing during the Financial Crisis: Evidence from European SMEs. Journal of Corporate

Finance, 27, 173–193, https://doi.org/10.1016/j.jcorpfin.2014.05.001

Chodorow-Reich, G. (2014). The Employment Effects of Credit Market Disruptions: Firm-Level

Evidence from the 2008–9 Financial Crisis. The Quarterly Journal of Economics, 129(1),

1–59, https://doi.org/10.1093/qje/qjt031

Cohen, L. J., Cornett, M. M., Marcus, A. J., Tehranian, H. (2014). Bank Earnings Management and Tail Risk during the Financial Crisis. Journal of Money, Credit and Banking, 46(1), 171–197, https://doi.org/10.1111/jmcb.12101

Cole, R. A., Dietrich, A. (2013). SME Credit Availability around the World: Evidence from the World Bank’s Enterprise Surveys. Midwest Finance Association 2013 Annual Meeting Paper, https://doi.org/10.2139/ssrn.2043624 Available at: http://world-finance-conference.com/papers_wfc2/751.pdf

Hall, R. E. (2014). Quantifying the Lasting Harm to the US Economy from the Financial Crisis. NBER. Macroeconomics Annual, 29, University of Chicago Press, https://doi.org/10.3386/w20183 (?)

Holton, S., Lawless, M., McCann, F. (2014). Firm Credit in the Euro Area: A Tale of Three Crises. Applied Economics, 46(2), 190–211.

Ivashina, V., Scharfstein, D. (2010). Bank Lending during the Financial Crisis of 2008. Journal of Financial Economics, 97(3), 319–338, https://doi.org/10.1016/j.jfineco.2009.12.001

Jimenéz, G., Ongena, S., Peydró, J. L., Saurina, J. (2012). Credit Supply versus Demand: Bank and Firm Balance-Sheet Channels in Good and Crisis Times. European Banking Center.

Discussion Paper No. 3., https://doi.org/10.2139/ssrn.1980139

Kahle, K. M., Stulz, R. M. (2013). Access to Capital, Investment, and the Financial Crisis. Journal of Financial Economics, 110(2), 280–299, https://doi.org/10.1016/j.jfineco.2013.02.014

Kundid, A., Ercegovac, R. (2011). Credit Rationing in Financial Distress: Croatia SMEs’ Finance Approach. International Journal of Law and Management, 53(1), 62–84, https://doi.

org/10.1108/17542431111111890

Love, I., Mylenko, N. (2003). Credit Reporting and Financing Constraint. World Bank Mimeo.

Working Paper No. 3142, https://doi.org/10.1596/1813-9450-3142 Available at: http://

siteresources.worldbank.org/DEC/Resources/Credit_Reporting_and_Financing_Constraints.pdf

Mac an Bhaird, C. (2013). Demand for Debt and Equity before and after the Financial Crisis. Research in International Business and Finance, 28, 105–117, https://doi.org/10.1016/j.ribaf.2012.10.001

Martínez-Sola, C., García-Teruel, P., Martínez-Solano, P. (2014). Trade Credit and SME Profitability. Small Business Economics, 42(3), 561–577, https://doi.org/10.1007/s11187-013-9491-y

Mishkin, F. S. (1995). Symposium on the Monetary Transmission Mechanism. The Journal

of Economic Perspectives, 9(4), 3–10, https://doi.org/10.1257/jep.9.4.3

Modina, M., Pietrovito, F. (2014). A Default Prediction Model for Italian SMEs: the Relevance of the Capital Structure. Applied Financial Economics, 24(23), 1537–1554, https://doi.org/10.1080/09603107.2014.927566

Ogawa, K., Tanaka, T. (2013). The Global Financial Crisis and Small- and Medium-Sized

Enterprises in Japan: How Did they Cope with the Crisis? Small Business Economics, 41(2),

401–417, https://doi.org/10.1007/s11187-012-9434-z

Peek, J., Rosengren, E. S. (1995). Is Bank Lending Important for the Transmission of Monetary Policy? An Overview. New England Economic Review, 3–10.

Psillaki, M., Daskalakis, N. (2009). Are the Determinants of Capital Structure Country or

Firm Specific? Small Business Economics, 33(3), 319–333, https://doi.org/10.1007/

s11187-008-9103-4

Ryan, R. M., O’Toole, C. M., McCann, F. (2014). Does Bank Market Power Affect SME Financing Constraints? Journal of Banking & Finance, 49, 495–505, https://doi.org/10.1016/j.jbankfin.2013.12.024

Shen, Y., Shen, M., Xu, Z., Bai, Y. (2009). Bank Size and Small- and Medium-Sized Enterprise(SME) Lending: Evidence from China. World development, 37(4), 800–811, https://doi.org/10.1016/j.worlddev.2008.07.014

Tagkalakis, A. (2013). The Effects of Financial Crisis on Fiscal Positions. European Journal of Political Economy, 29, 197–213, https://doi.org/10.1016/j.ejpoleco.2012.11.002

Vermoesen, V., Deloof, M., Laveren, E. (2013). Long-Term Debt Maturity and Financing

Constraints of SMEs during the Global Financial Crisis. Small Business Economics, 41(2),

433–448, https://doi.org/10.1007/s11187-012-9435-y