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SME Financing Conditions in Europe: Credit Crunch or Fundamentals?

Published online by Cambridge University Press:  26 March 2020

Sarah Holton ,
Martina Lawless  and
Fergal McCann
Fergal McCann*
Affiliation:
Central Bank of Ireland
*
E-mail: fergal.mccann@centralbank.ie.
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Abstract

Cross-country divergence in credit availability to Small and Medium Enterprises (SMEs) has been a salient feature of the recent Euro Area economic crisis. This paper uses firm level and macroeconomic data to identify heterogeneity in SME credit conditions within the Euro Area since 2009. By taking account of differences in firm quality and in the risk-free interest rate, we use remaining residual differences in credit supply conditions to identify a ‘credit crunch’. We investigate whether macroeconomic conditions such as real economy growth and private sector leverage can explain these residual credit crunches, finding that banks respond to these factors when allocating credit to SMEs. The analysis allows identification of economies where credit conditions appear both unexpectedly restrictive and accommodative.

Keywords

credit supplycredit demandeconomic crisisdebt overhangG01G21
Type
Research Articles
Information
National Institute Economic Review , Volume 225 , August 2013 , pp. R52 - R67
Copyright
Copyright © 2013 National Institute of Economic and Social Research

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Footnotes

The views expressed in this paper are our own, and do not necessarily reflect the views of the Central Bank of Ireland or the ESCB.

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