Financial Infrastructure and Access to Finance for European SMEs

Abstract

In this article we assess credit rationing across European countries by analyzing the impact of banking competition on the access to finance of firms. The importance of the financial sector in promoting the sustainable economy is recognized by the European Union, that has taken the lead in efforts to build a financial system that supports sustainable growth. However, it should be acknowledged that in highly competitive business environments, it is not easy to challenge the existing paradigms, since companies need to be profitable in addition to improving their environmental performance. Using data from European firms Survey on the Access to Finance of small- and medium-sized enterprises (SMEs), our results, using Probit regression, support the Market Power Hypothesis, outlining that more concentrated banking markets are characterized by higher levels of credit rationing. Also, our results reveal that small firms are more credit rationed compared to large firms. The analysis shows that financial constraints are stronger in the countries more affected by the financial crisis.