Small and medium sized enterprises (SMEs) are a fundamental source of economic growth across much of Europe and are perceived as key drivers of employment (European Commission, 2010). Indeed SME finance has received considerable attention where high information opacity defines much of its idiosyncratic nature. Moreover, concerns surrounding the availability of external finance in particular bank credit are an integral feature of SME finance where such concerns have intensified given the recent economic and financial crisis. Issues surrounding bank credit availability are further heightened for SMEs given their dependency on this external source of finance (Popov and Udell, 2012). Furthermore, given the idiosyncratic nature of SME finance, much attention is placed on their capital structure. This study seeks to evaluate in a European context the impact of country characteristics on SME bank credit availability and on SMEs capital structure. The country characteristics evaluated include that of the information, legal, judicial, bankruptcy, social, tax and regulatory environments, derived from the US conceptual model of Berger and Udell (2006). Indeed, this study utilises its own conceptual framework which incorporates much of that of Berger and Udell (2006) and reflects the impact of these country characteristics in both dimensions of the research questions. Employing a quantitative approach, two datasets are employed, namely the EC/ECB Survey on Access to Finance of SMEs over the time period, 2010-2011 and the Bureau Van Dijk Amadeus database over the time period, 2005-2011. Moreover, a comprehensive set of proxies are employed to represent the country characteristics, obtained mainly from the World Bank and the European Social Survey (ESS).The findings indicate that country characteristics are important, namely those of the information, legal, judicial, bankruptcy and regulatory environments. In terms of availability, SMEs appear more likely to secure bank credit when there is less sharing of credit information, greater private property protection, lower costs to enforcing a contract, higher costs in resolving a debt and more stringent capital requirements. Furthermore, bank size appears to matter for SME bank credit availability regardless of domicile. Similarly, in the context of SME firm leverage, country characteristics also prove influential having controlled for firm and industry characteristics and macroeconomic and credit supply conditions. In particular, SME debt levels appear higher when the greater the sharing of credit information, the greater the extent of private property protection, the more time required to enforce a contract, the less time needed to resolve a debt and when there are less stringent capital requirements. This study adds to the existing body of knowledge, considering a time period when concerns surrounding the availability of SME bank credit and indeed the capital structure of SMEs have been heightened. Utilising Berger and Udell’s (2006) conceptual model outside of its US origins, i.e. in a European context, this study devises a conceptual framework to test the impact of country characteristics on the landscape of SME bank credit availability and SME firm leverage.
|Publication status||Unpublished - 2014|
- European SMEs, Bank credit