SMES, FDI and financial constraints

Wouter De Maeseneire and T. Claeys ()
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T. Claeys: Vlerick Leuven Gent Management School

Vlerick Leuven Gent Management School Working Paper Series from Vlerick Leuven Gent Management School

Abstract: This paper explores the problems experienced by small and medium-sized enterprises (SMEs) with international ambitions in gaining access to debt and equity finance for foreign direct investment (FDI) projects. We develop several arguments why such small businesses are expected to face severe financing constraints for foreign investments and provide an explorative empirical analysis of these issues for a sample of thirty-two Belgian SMEs. We find that the market of FDI finance for SMEs is subject to considerable capital market imperfections. The information problems, lack of collateral, the home bias of financiers and the capital gearing method used by banks to evaluate small firms' foreign projects give rise to financial constraints. The FDI finance gap hinders SMEs in their internationalization strategy and negatively affects their economic performance.

Keywords: small business financing; SMEs; FDI; internationalization; financing constraints (search for similar items in EconPapers)
JEL-codes: F21 F23 F34 G32 M13 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2007-10-01
New Economics Papers: this item is included in nep-ent and nep-ppm
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