Financing of European SMEs: Patterns, Determinants and Dynamics over Time
Small and medium-sized enterprises (SMEs) play an important role for employment, investment, innovation, and economic growth of the European economy. Access to finance for SMEs, however, has always been challenging, but due to the financial crisis access to finance for SMEs in Europe deteriorated. High information asymmetries and agency risks as well as insufficient collateral are often claimed to be the reasons for this situation. In particular, bank lending constraints have been found to affect SMEs more severely in comparison to larger firms.
The European Investment Bank Group, which consists of the European Investment Bank (EIB) and the European Investment Fund (EIF), is responsible for the execution of different SME financing programs established by the European Commission such as “Horizon 2020” or the EU program for the “Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME)”. Access to finance for SMEs is one of the top priority areas of the EIB, and it is the central mission of the EIF. The EIB and the EIF act as a catalyst for investments for the support of the economic and social development in Europe through a wide network of financial institutions and investment funds. Furthermore, the EIB can provide direct loans. In this respect, the EIB is interested in evidence-based suggestions with regard to the design and development of EIB and EU SME financing programs. The identification of an empirical taxonomy of SME financing patterns according to the use of different financing instruments as substitutes or complements will serve as an important contribution to such policy advice. In particular, the research project seeks to support the EIF and the EIB to tailor finance programs to the specific context and needs of SMEs while taking into account cross-country variations. In addition, on a political level, the results can help to assess possible impacts of intended policy changes, such as changes in banking regulations, on SME financing prior to their implementation and to evaluate which groups of SMEs will be particularly affected by these changes.
The EIB Group provides support to the research, which is carried out by Christian Masiak under the supervision of Prof. Dr. Joern H. Block at the University of Trier. The research project is performed under the EIB Institute’s STAREBEI programme involving Dr. Frank Lang from the EIF’s Research & Market Analysis as the EIB Group Co-tutor. In particular, the research aims to:
- Identify financing patterns of European SMEs and create a comprehensive taxonomy of SME financing in Europe
- Investigate the influence of firm-, product-, industry-, and country- characteristics on the financing patterns of European SMEs
- Identify changes of financing patterns of European SMEs and their drivers over time
- Investigate specific financing instruments in more detail
The results of the project were recently published as a working paper, which can be accessed here.
Results of previous research on SME financing patterns, which will serve as a basis for this project, were recently published as an EIF Working Paper. More information on EIF’s Research & Market Analysis can be found here.