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Small Firms, Corruption, and Demand for Credit. Evidence from the Euro Area

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  • Emma Galli
  • Danilo V. Mascia
  • Stefania P. S. Rossi

Abstract

In this paper, we aim to assess how the quality of the institutional environment – identified according to the level of corruption perceived in a country – may affect the access to credit for micro, small, and medium-sized enterprises (MSMEs). Based on a sample of 68,115 observations – drawn from the ECB-SAFE survey – related to MSMEs chartered in 11 euro area countries, we investigate whether the level of corruption affects their demand for bank loans during the period 2009–2014. Overall, we find that the degree of corruption seems to play a role in the applications for bank loans when small firms are under investigation. Interestingly, results highlight that small businesses chartered in highly corrupt countries face a greater probability of self-restraint regarding their loan applications (about 7.4%) than small firms located in low-corruption economies (around 6%). The results are robust to various model specifications and econometric methodologies. Our findings suggest that anti-corruption policies and measures enhancing transparency in the economy may be crucial in reducing the negative spillovers generated by a low-quality institutional environment on the access to credit by small firms.

Suggested Citation

  • Emma Galli & Danilo V. Mascia & Stefania P. S. Rossi, 2017. "Small Firms, Corruption, and Demand for Credit. Evidence from the Euro Area," International Business Research, Canadian Center of Science and Education, vol. 10(11), pages 158-174, November.
    • Handle: RePEc:ibn:ibrjnl:v:10:y:2017:i:11:p:158-174
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    More about this item

    Keywords

    credit access; bank loans; MSMEs; corruption;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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