The impact of sovereign ratings on euro zone SMEs’ credit rationing

Abstract

PurposeThe purpose of this paper is to investigate credit rationing across firms in euro zone countries, as it relates to its own sovereign credit ratings.Design/methodology/approachThe authors utilize firm-level data from the Survey on Access to Finance of Enterprises for the period 2009-2013 conducted by the European Central Bank.FindingsA negative association between the rating of sovereign creditworthiness and credit rationing is identified, while credit rationing varies substantially even among countries with the highest quality of sovereign bonds. Credit rationing is lower in sovereigns with high-quality ratings and higher in sovereigns near default. These results remain intact when fundamental firm characteristics (e.g. firm’s age and size, sector of economic activity, financial situation, etc.) are taken into consideration. This indicates that the interconnection of sovereign debt risk with domestic credit market outcomes is robust.Originality/valueThe present study contributes to the relevant literature by performing a detailed analysis of credit rationing for euro zone SMEs and by exploring the link between sovereign credit rating and credit rationing during the sovereign debt crisis period.