Abstract
In this paper, we aim to assess how the quality of the institutional environment – identified according to the level of corruption perceived in a country – may affect the access to credit for micro, small, and medium-sized enterprises (MSMEs). Based on a sample of 68,115 observations – drawn from the ECB-SAFE survey – related to MSMEs chartered in 11 euro area countries, we investigate whether the level of corruption affects their demand for bank loans during the period 2009–2014.Overall, we find that the degree of corruption seems to play a role in the applications for bank loans when small firms are under investigation. Interestingly, results highlight that small businesses chartered in highly corrupt countries face a greater probability of self-restraint regarding their loan applications (about 7.4%) than small firms located in low-corruption economies (around 6%). The results are robust to various model specifications and econometric methodologies. Our findings suggest that anti-corruption policies and measures enhancing transparency in the economy may be crucial in reducing the negative spillovers generated by a low-quality institutional environment on the access to credit by small firms.
Highlights
Bank credit is a crucial financing tool for the development of micro, small, and medium-sized enterprises (MSMEs), given their difficulties in entering the equity markets (Ayadi and Gadi 2013; Kremp and Sevestre 2013; Vermoesen, Deloof, and Laveren 2013)
We find that the degree of corruption seems to play a role in the applications for bank loans when small firms are under investigation
Results highlight that small businesses chartered in highly corrupt countries face a greater probability of self-restraint regarding their loan applications than small firms located in low-corruption economies
Summary
Bank credit is a crucial financing tool for the development of micro, small, and medium-sized enterprises (MSMEs), given their difficulties in entering the equity markets (Ayadi and Gadi 2013; Kremp and Sevestre 2013; Vermoesen, Deloof, and Laveren 2013). In times of crisis – like the one that recently occurred in Europe – liquidity shortages and credit restrictions have further weakened the access to bank loans for MSMEs (Popov and Van Horen 2015; Popov and Udell 2012). This is not inconsequential, given that MSMEs are important drivers of the European economy. They represent 99% of nonfinancial firms in the European Union (EU), provide jobs for more than 91 million people
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