Non-Bank Financing for Euro Area Companies During the Crisis
During the recent financial crisis the strong dependency of euro area non-financial corporations—and in particular SMEs—on bank financing has left them exposed to the weaknesses and deleveraging needs of the EU banking sector. This chapter examines the ex
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Introduction The financial crisis has raised concerns about the potential overreliance of euro area non-financial corporations on banks for external financing. This is particularly true for small- and medium-sized enterprises (SMEs) and mid-caps, which usually have little direct access to capital markets and depend on effective bank financing in addition to equity finance. The strong dependency of SMEs and mid-caps on bank financing has left them more exposed to the post-crisis weaknesses and deleveraging needs of the EU banking sector. This article focuses on the financing of nonfinancial corporations, comparing SMEs and mid-caps with large enter-
JEL Classification: D22, E22, G32, L25
A. Ferrando (*) • E. Mavrakis Capital Markets/Financial Structure Division of the European Central Bank, European Central Bank, Frankfurt, Germany e-mail: [email protected] © The Author(s) 2017 S.P.S. Rossi (ed.), Access to Bank Credit and SME Financing, Palgrave Macmillan Studies in Banking and Financial Institutions, DOI 10.1007/978-3-319-41363-1_1
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A. Ferrando and E. Mavrakis
prises in the period from 2009 to mid-2015, using firm-level information derived from the European Central Bank/European Commission (ECB/ EC) survey on the access to finance of enterprises (SAFE). In particular, this chapter examines the extent to which the available external funding sources, except bank loans and overdrafts—grants/ subsidized loans, trade credit, other loans, leasing, debt securities, mezzanine and equity—are accessible to companies and how their use differs across firms and countries. As a first outcome, it is illustrated that trade credit is the most common source of finance once bank loans and bank overdrafts are excluded. Furthermore, other bank-related instruments, like grants/subsidized loans and leasing, are used much more frequently than the market-based instruments of debt securities, mezzanine and equity. Furthermore, for most of the instruments there is a clear pattern that the frequency of use increases with size of firm. This confirms that large firms typically have better and more diversified access to the various sources of finance. Econometric analysis provides some novel evidence on the use of non-bank external sources of finance during the crisis. We consider as a dependent variable the direct replies of surveyed firms reporting whether they have made use of a specific non-bank financing source. As determinants we include a set of firms’ specific factors related to their demographics and financial situation and factors related to bank financing, like bank lending costs and credit standards, and an indicator of bank credit constraints. These variables are particularly useful for detecting possible substitution relationships between bank and non-bank sources. In addition, we control for country-level variables related to real activity (GDP growth and unemployment rate), and we distinguish between euro area countries that were less affected by the crisis and those that were more severely affected. Our em
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