ABSTRACT
The vast majority of firms in Europe are micro firms. Still, we know little about their financing patterns. Our paper aims to close this gap. Based on a large European firm-level data set, we find that micro firms differ in their financing patterns from larger SMEs. Our empirical results show that micro firms are more likely to use internal financing instruments, whereas they are less likely to use state subsidies, trade credit or asset-based financing instruments. Furthermore, micro firms differ from larger SMEs by using more short-term debt financing instruments such as credit card overdrafts, credit lines and bank overdrafts. The implications of these findings for micro firms and policy makers are discussed.
Acknowledgments
We would like to thank Annalisa Ferrando from the European Central Bank (ECB) and Dr. Andreas Heinz (University of Luxembourg) for the fruitful discussions about our research project. We are also very grateful to comments of Riccardo Aguglia and Stefan Oberbichler and input that allowed us to improve the paper. Moreover, the study benefited from various discussions at the G-Forum in Leipzig, the working group for Entrepreneurship and Entrepreneurial Financing of the Förderkreis Gründungs-Forschung (FGF) and the seminars at the European Central Bank and the European Commission. This work was supported by the European Investment Bank Institute under the STAREBEI program; and “Deutscher Sparkassen- und Giroverband (DSGV) Wissenschaftsförderung e.V.”. An earlier version of this paper has been published as EIF Working Paper 2017/44.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. The following single financing instruments are included in the cluster analysis: (a) retained earnings or sale of assets, (b) grants or subsidized bank loans, (c) credit lines, bank overdrafts or credit card overdrafts, (d) bank loans (both short and long-term), (e) trade credit, (f) other loans (for example from family and friends, a related enterprise or shareholders), (g) leasing, hire purchase or factoring (h) debt-securities issued, (i) equity (quoted shares, unquoted shares or other forms of equity provided by the owners or external investors such as venture capital companies or business angels), (j) other sources of financing (subordinated debt instruments, participating loans, crowdfunding). In addition, we included a variable that indicates whether a company did not use any external financing in the past six months.
2. Malta was excluded due to a large number of missing data in the survey. All other European Union countries are covered by the data set.
3. See Section 2.2 for a definition.
4. Further information is available at http://www.eif.org/what_we_do/microfinance/index.htm (accessed 28 August 2018).
5. See for examples the website of the European Commission available at: http://ec.europa.eu/social/main.jsp?catId=952&intPageId=3510&langId=en (accessed 28 August 2018).