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SMEs, financial constraints and growth

Ryan Banerjee

No 475, BIS Working Papers from Bank for International Settlements

Abstract: The SME sector is often hailed as an important engine of economic growth. But recent research suggests that young rather than small firms are the main contributors to employment growth. This paper shows that young firms are also key contributors to profit growth across advanced economies. It them examines the impact of financial constraints on profitability across the age distribution of SMEs. We find that start-ups which report finance as their greatest constraint receive smaller new loans and evidence that financing constraints reduce start-up profitability. We do not find a similar relationship for older SMEs in pre-crisis data. Therefore, policy initiatives which ease financing constraints for start-ups could play an important role in boosting economic growth. However, following the protracted financial crisis in Europe, we also find that financial constraints reduced profitability in the cohort of more mature firms that were start-ups just before the financial crisis.

Keywords: firm age; firm size; SMEs; financial constraints; economic growth (search for similar items in EconPapers)
Pages: 22 pages
Date: 2014-12
New Economics Papers: this item is included in nep-bec, nep-ent and nep-sbm
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Citations: View citations in EconPapers (14) Track citations by RSS feed

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