Using euro area firm-level data since the recent financial crisis, we test whether bank lending constrained small- and medium-sized enterprises (SMEs) are more likely to use or apply for alternative external finance including trade credit, informal lending, loans from other companies, market financing (issued debt or equity) and state grants. Our constraint indicators identify both credit-rationed firms and firms that self-ration due to high lending costs. We find that credit-rationed firms are more likely to use, and apply for, trade credit. This increases with firm size and age. We also find that constrained firms are more likely to use informal lending or loans from other companies but find no evidence that bank-constrained SMEs apply for, or use, market finance. Smaller, self-rationing borrowers are more likely to apply for grant finance. Finally, we find that firms denied credit for working capital tend to turn to trade credit, while informal and inter-company lending tends to act as a substitute for bank investment loans.

This paper examines the extent to which bank market power alleviates or magnifies SME credit constraints using a large panel dataset of more than 118,000 SMEs across 20 European countries over the period 2005–2008. To our knowledge, this is the first study to examine bank market power and SME credit constraints in an international, developed economy setting. Moreover, our study is the first to address a number of econometric considerations simultaneously, in particular by controlling for the availability of profitable investment opportunities using a structural Q model of investment. Our results strongly support the market power hypothesis, namely, that increased market power results in increased financing constraints for SMEs. Additionally, we find that the relationship exhibits heterogeneity across firm size and opacity in a manner that suggests that the true relationship between bank market power and financing constraints might not be fully explained by the existing theory. Finally, we find that the effect of bank market power on financing constraints increases in financial systems that are more bank dependent.

Our research firstly tests the difference in investment efficiency between state-owned enterprises (SOEs) and private firms and secondly evaluates the effect of privatisation and equitisation policies on the investment efficiency of former state owned enterprises (SOEs). We use a novel dataset from Viet Nam which covers large and non-listed SMEs across construction, manufacturing, and service sectors. Our methodology uses a structural model to test the relationship between Tobin's Q and capital spending. While evident differences in investment efficiency are found across heterogeneous groups of private firms (size, industry, financially constrained and location), we find no evidence of investment spending being linked to marginal returns by SOEs across all sectors and size classes. However, former SOEs that have been privatised and equitized with a minority state shareholding display positive links between Q and investment. In fact, the link is stronger for these firms than for private firms. Differences are also evident across size and sector highlighting that the method of divestment chosen by government shareholders has a differential impact on efficiency across groups of firms and industries.