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This study investigates the relationship between regulatory policies governing public procurement and participation by small and medium enterprises (SMEs), using a large dataset on European procurement. We find that better quality procurement regulation is associated with greater SME participation and higher probability that SMEs win contracts. Dividing contracts into smaller lots, a key feature of 2014 EU procurement regulation reform, bolsters participation by SMEs but only increases the probability of SMEs winning contracts for small value lots (€25,000 or less). Our results suggest governments seeking to enhance participation by SMEs in public procurement without explicitly favoring SMEs can do so by improving the overall quality of procurement processes.

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