Bank lending constraints, trade credit and alternative financing during the financial crisis: Evidence from European SMEs

Casey, Eddie; O’Toole, Conor

doi:10.1016/j.jcorpfin.2014.05.001

Cited by 316 publications

(226 citation statements)

References 49 publications

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“…First, it contributes to prior research on SME financing by focusing on the substitutive and complementary effect of different financing instruments (Beck et al 2008;Casey and O'Toole 2014). Second, the results extend the research on firm-, product-and industry-specific characteristics of SME financing (Hall et al 2004;Jõeveer 2012).…”

Section: Introductionsupporting

confidence: 53%

“…Furthermore, SMEs in bank-based economies are more likely to use statesubsidised financing. This finding might be the result of the European financial market crisis, where banks reduced their credit engagement, especially in regard to smaller and riskier creditors (Casey and O'Toole 2014;Ferrando and Griesshaber 2011;Ferrando and Mulier 2013) and government support was required to overcome these access to finance problems.…”

Section: Country-specific Characteristicsmentioning

confidence: 99%

“…However, most studies in the past only differentiated between external equity and external debt, and did not take into account that a variety of external financing instruments exist, which can complement and/or substitute traditional debt or equity instruments (Beck et al 2008;Berger and Udell 1998;Casey and O'Toole 2014;Cosh et al 2009). Furthermore, it has been found that these effects change over the business cycle and in particular in times of financial crises (Casey and O'Toole 2014;Psillaki and Eleftheriou 2014). Table 1provides an overview of relevant empirical studies.…”

Section: Introductionmentioning

confidence: 99%

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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: Introductionsupporting

confidence: 53%

Section: Country-specific Characteristicsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Financing patterns of European SMEs – an empirical taxonomy

2016

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“…The informational asymmetries between firm and bank that prove an obstacle to small firm financing could be less severe in a trade credit relationship, where the supplier providing credit has experience of the firm's sector and production process. There is also evidence that access to trade credit can play an important role in mitigating the impact of bank credit constraints, in particular during periods of recession (Love, Preve and Sarria-Allende, 2007;Ferrando and Mulier, 2013;Casey and O'Toole, 2013).…”

Section: Capital Structure Of Smesmentioning

confidence: 99%

Financial structure and diversification of European firms

Lawless

OʼConnell²,

O’Toole

2015

Applied Economics

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“…Additional controls for age, size and sector are included. Given the importance of trade credit to financing firms during financial crises, in particular in Ireland (Casey and O'Toole, 2014;Lawless et al, 2013), we also include a measure of if there has been an increase in the number of days taken to pay suppliers or to collect payments from customers.…”

Section: Datamentioning

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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Bank lending constraints, trade credit and alternative financing during the financial crisis: Evidence from European SMEs

Cited by 316 publications

References 49 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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