Paper

Small- and Medium-Size Enterprise Financing in Eastern Europe

How are the SMEs across Eastern Europe financed?

This paper uses the AMADEUS database, which includes financial information on over 97,000 private and publicly traded firms in fifteen Eastern and Central European countries. It uses this database to provide a new analysis of the general financing patterns of private firms across a large sample of Eastern European countries.

Post analysis, the authors conclude:

  • The size of the small and medium enterprises (SME) sector, as measured by the percentage of total employment in Eastern European countries, is smaller than what is observed in most developed economies;
  • The SMEs in Eastern Europe are generally very small and employ very few individuals;
  • SMEs in Eastern Europe suffer from financial constraints - low absolute amounts from outside financing that impede their growth;
  • SMEs seem to constitute the most dynamic sector, relative to larger firms; in general, the SME sector comprises relatively younger, more leveraged and more profitable firms;
  • The SMEs seem to be only borrowing short-term debt, which appears to be the only type of financing that these firms can access.

The authors recommend that government formulate policies that encourage growth of the SME sector;

  • Improve macroeconomic environment, develop an efficient legal and judicial system that allows contract enforcement, M&A and efficient resolution of financial distress;
  • Permit foreign bank and corporate entry;
  • Develop financial sector and debt market.

About this Publication

By Klapper, L. & Sarria- Allende, V. & Sulla, V.
Published