The Real Effects of Improving Access to Capital Markets Financing: Evidence from European SMEs

Due to crisis-ridden banks and new regulation (Basel III, IFRS, Mifid), there was a significant growth in innovative financing sources for SMEs in recent years. This paper uses the introduction of SME equity and bond segments as quasi-exogenous shocks and studies their effect on firm behavior. First, we find that the introduction of dedicated equity segments for SMEs increases their equity financing significantly (around 6% in relative terms). Equivalently, the introduction of SME bond segments increases bond financing of SMEs significantly (around 9.5% in relative terms). Our results suggest a positive complementarity of introducing SME bond and equity segments, as higher disclosure costs can be leveraged across segments. Second, we document significant real effects. In line with theory, an easier access to external finance increases investment and decreases the amount of cash holdings.