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SMEs' near-death experiences. Do local banks extend a helping hand?

Iwanicz-Drozdowska, Małgorzata, Krzysztof Jackowicz and Łukasz Kozłowski

Emerging Markets Review, 2018, vol. 37, issue C, 47-65

Abstract: We investigate how the presence of local banks affects the prospects of troubled small and medium-sized enterprises (SMEs). Using a new dataset covering the years 2006–2015, we find evidence supporting the notion that local banks extend a helping hand to SMEs and act in this role efficiently. We establish that SMEs operating in regions where local banks hold a relatively strong position suffer losses less frequently, accumulate lower losses in relation to equity capital, report shorter series of losses, have a lower probability of legal bankruptcy or serious financial distress, and recover more easily from financial difficulties. Therefore, our study suggests that policies shaping the local structures of banking markets have a material impact on distressed SMEs' prospects.

Keywords: Financial distress; Bankruptcy; Small and medium-sized enterprises; Local banks; Relationship banking (search for similar items in EconPapers)
JEL-codes: G21 G31 (search for similar items in EconPapers)
Date: 2018
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