Small and vulnerable during crises? Firm size and financing constraint dynamics

David Heller (), Pantelis Karapanagiotis () and Øivind Nilsen
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David Heller: Politecnico di Milano, School of Management
Pantelis Karapanagiotis: University of Groningen

Small Business Economics, 2025, vol. 65, issue 1, No 16, 473 pages

Abstract: Abstract This study analyzes the dynamics of financing constraints under changing economic conditions and the role of firm size in this context. Using administrative data from Germany, we quantify financing constraints expressed as the probability that a firm encounters excess demand or excess supply. On average, small- and medium-sized enterprises (SMEs) are indeed more likely than larger firms to face excess demand for loans. Using the Great Financial Crisis as an empirical setting, we show that tightening financing conditions do not affect smaller firms disproportionally, but generally risky borrowers. Importantly, post-crisis trends in debt-ratios, profitability, investments, and employment are similar irrespective of firm size, while smaller firms respond to the economic slowdown by persistently building up cash buffers. Our results urge policymakers to consider specific characteristics of bank-dependent firms to assess their exposure to economic crises—instead of focusing on size as vulnerability criteria per se.

Keywords: Financial constraints; SME financing; Firm-level data; Bank financing; Small business resilience (search for similar items in EconPapers)
JEL-codes: D22 D53 G01 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11187-024-00996-y

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