Abstract
The promotion of a more stable European banking system has become a priority which, not doubt, will bring important benefits to firms. However, bank stability comes with stronger regulations that could harm the access to finance of small and medium-sized enterprises (SMEs), which are highly dependent on bank financing. We provide new evidence on the association between the stability of a country’s banking system and SMEs access to finance through the study of borrower discouragement. We analyze 20,207 observations gathered among 16,382 firms operating in the EU-28 during the period 2011–2018. Applying multilevel methodology, our results show that SMEs operating in countries with more stable banking systems are less likely to be discouraged from applying for a loan. Working to achieve a more stable banking system does not seem to harm the access to finance of SMEs.
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Notes
The percentage of rejected firms decreases from 8.21 to 6.70% if we compute it over the whole sample, as we do with the percentage of discouraged firms, instead of using just those firms that did apply for a loan. Data provided by the Survey on the Access to Finance of Enterprises (SAFE) carried out by the European Commission and the European Central Bank between 2011 and 2018.
For more information about the fieldwork, sample selection and weighting of the survey, see https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/index.en.html - Annex 3 to the methodological information on the survey and user guide for the anonymized micro dataset.
ECB rounds include the following countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, and Spain. Since 2014, Slovakia has been included in the sample in each survey round, while initially it was only included every 2 years (2009H1, 2011H1, and 2013H1). ECB rounds exclude the smallest countries (Cyprus, Estonia, Latvia, Lithuania, Luxembourg, Malta, and Slovenia) which represent less than 3% of the total number of employees in the euro area because, as ECB states, the inclusion of the above countries had only a very marginal impact on the results for the euro area as a whole.
The list of the countries included in Common rounds consists in those included in the ECB rounds plus the smallest euro area countries plus Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and United Kingdom plus some neighboring countries (i.e., Albania, Bosnia Herzegovina, Iceland, Israel, Kosovo, Liechtenstein, Macedonia, Montenegro, Norway, Serbia, Switzerland, and Turkey).
We do not include all the countries covered in Common rounds because of the unavailability of some key variables. We leave out for our analyses the first Common round (wave 1) because of the particular settings of this round in which not all the questions were asked to all firms.
In the interest of brevity, the industry dummies are not shown in the tables and their results are not discussed.
Due to data limitations, we do not have the ideal measure of firm risk in order to make a distinction between good and bad borrowers.
Following Mayordomo and Rodríguez-Moreno (2018), we drop observations from Spain because the SME SF was implemented 4 months earlier than the other EU countries.
An increase in the number of zombies also reduces the collateral value of good firms in the industry, and hence tightens any financial constraints (Caballero et al. 2008).
Introducing the first lag already reduces the sample size to 2320 observations, and 1803 firms, which leads to the large reduction in the interclass correlation, and an LR test that accepts the null hypothesis that the single-level model could be used instead of the two-level model. Since running a single-level logistic regression does not qualitatively change our results and conclusions, we decide to keep the same estimation method as in the previous regressions to make our results comparable.
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The authors acknowledge financial support from Agencia Estatal de Investigación (https://doi.org/10.13039/501100011033), research project PID2019-106314GB-I00/AEI/10.13039/501100011033. We also acknowledge financial support from Fundación UCEIF and Santander Financial Institute (SANFI).
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Mol-Gómez-Vázquez, A., Hernández-Cánovas, G. & Koëter-Kant, J. Banking stability and borrower discouragement: a multilevel analysis for SMEs in the EU-28. Small Bus Econ 58, 1579–1593 (2022). https://doi.org/10.1007/s11187-021-00457-w
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DOI: https://doi.org/10.1007/s11187-021-00457-w