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SMEs, financial constraints and growth

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  • Ryan Banerjee
Abstract
The SME sector is often hailed as an important engine of economic growth. But recent research suggests that young rather than small firms are the main contributors to employment growth. This paper shows that young firms are also key contributors to profit growth across advanced economies. It them examines the impact of financial constraints on profitability across the age distribution of SMEs. We find that start-ups which report finance as their greatest constraint receive smaller new loans and evidence that financing constraints reduce start-up profitability. We do not find a similar relationship for older SMEs in pre-crisis data. Therefore, policy initiatives which ease financing constraints for start-ups could play an important role in boosting economic growth. However, following the protracted financial crisis in Europe, we also find that financial constraints reduced profitability in the cohort of more mature firms that were start-ups just before the financial crisis.

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  • Ryan Banerjee, 2014. "SMEs, financial constraints and growth," BIS Working Papers 475, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:475
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    References listed on IDEAS

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    Cited by:

    1. Franziska Bremus & Katja Neugebauer, 2017. "Don't Stop Me Now: The Impact of Credit Market Fragmentation on Firms' Financing Constraints," Discussion Papers of DIW Berlin 1650, DIW Berlin, German Institute for Economic Research.
    2. Brei, Michael & Gadanecz, Blaise & Mehrotra, Aaron, 2020. "SME lending and banking system stability: Some mechanisms at work," Emerging Markets Review, Elsevier, vol. 43(C).
    3. Bremus, Franziska & Neugebauer, Katja, 2018. "Reduced cross-border lending and financing costs of SMEs," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 80, pages 35-58.
    4. Horvath, Akos & Lang, Peter, 2021. "Do loan subsidies boost the real activity of small firms?," Journal of Banking & Finance, Elsevier, vol. 122(C).
    5. Beata Ślusarczyk & Katarzyna Grondys, 2019. "Parametric Conditions of High Financial Risk in the SME Sector," Risks, MDPI, vol. 7(3), pages 1-17, August.
    6. Mushtaq, Rizwan & Gull, Ammar Ali & Usman, Muhammad, 2022. "ICT adoption, innovation, and SMEs’ access to finance," Telecommunications Policy, Elsevier, vol. 46(3).
    7. Kim, Mee Jung, 2023. "Impact of the Community Reinvestment Act on small business employment in lower income neighborhoods," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    8. Ryan Niladri Banerjee & Kristian S Blickle, 2016. "Housing collateral and small firm activity in Europe," BIS Working Papers 575, Bank for International Settlements.
    9. Franziska M. Bremus, 2015. "The Debate about Financing Constraints of SMEs in Europe," DIW Roundup: Politik im Fokus 66, DIW Berlin, German Institute for Economic Research.
    10. Luca Papi & Emma Sarno & Alberto Zazzaro, 2017. "The geographical network of bank organizations: issues and evidence for Italy," Chapters, in: Ron Martin & Jane Pollard (ed.), Handbook on the Geographies of Money and Finance, chapter 8, pages 156-196, Edward Elgar Publishing.
    11. Andreas Mueller & Luca Sensini, 2023. "Determinants of Financing Decisions of SMEs: Evidence from Hotel Industry," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(3), pages 117-117, April.
    12. Kärnä Anders, 2021. "Take it to the (public) bank: The efficiency of public bank loans to private firms," German Economic Review, De Gruyter, vol. 22(1), pages 27-62, February.
    13. Besa SHAHINI, 2016. "Financial Constraints Of Small And Medium Enterprises: Case Of Albania," Journal of Social and Economic Statistics, Bucharest University of Economic Studies, vol. 5(1), pages 21-34, JULY.
    14. Daniela MITRAN, 2016. "Economic And Social Impact Of The Young Entrepreneurs Program In Romania," Romanian Economic Business Review, Romanian-American University, vol. 11(2), pages 154-160, June.
    15. Bremus, Franziska Maria & Neugebauer, Katja, 2015. "Don't Stop Me Now: The Impact of Credit Market Segmentation on Firms' Financing Constraints," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112857, Verein für Socialpolitik / German Economic Association.
    16. Luca Sensini & Amit Shan & Maria Vazquez, 2021. "Project Management Tools and Techniques and SME Performance: Empirical Evidence in the Context of Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 11(5), pages 45-51.
    17. International Finance Corporation, 2021. "Small Business, Big Growth," World Bank Publications - Reports 37842, The World Bank Group.
    18. Jackson Njau Waweru & Kennedy M. Waweru & Kenneth L. Wanjau & Josphat K. Kinyanjui, 2017. "Influence of Alternative Financing on the Relationship between Firm Size and Efficiency of Small and Medium Enterprises in Kenya," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(6), pages 01-15, October.

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    Keywords

    firm age; firm size; SMEs; financial constraints; economic growth;
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