THE IMPACT OF LOAN FINANCING ON THE PERFORMANCE OF SME’S FROM NON-EU TRANSITIONAL COUNTRIES
Authors: Holscher, J. and Howard-Jones, P.
Start date: 24 June 2015
This study considers the impact of finance (loans) on the performance and productive efficiency of a sample of firms from transitional countries outside the EU. In the theoretical literature the case that finance provides an important stimulus to both productivity and growth has long been made. There is also an extensive empirical literature at the macro-economic level which supports this view. However, for the case to be truly convincing it would be necessary to demonstrate a relationship at the firm level – to show that firm performance and efficiency is indeed strengthened by loans. To date there are very few firm level studies of the link between loans and firm performance. This study seeks to extend and develop the firm level literature using evidence from the BEEPS survey conducted in 2013. Our sample includes only SMEs in manufacturing. The approach uses two different methodologies, both of which explicitly incorporate firm heterogeneity. Firstly, we use propensity score matching to test whether loans result in a better outcome with respect to several different performance indicators. Our results suggest that loans did indeed improve performance in our sample of SMEs. Secondly, we use a stochastic frontier approach to (a) measure firm inefficiency and (b) test whether loans create a statistically significant reduction in this inefficiency. Our results show that loans did indeed enhance the productive efficiency of the SMEs in our sample.