Access to Bank Financing and New Investment: Evidence from Europe

Abstract:     
In this paper we study the relationship between firm age, the use of external finance and new investment decisions, in a sample of European firms. We find that younger firms use less bank financing than older firms only in non-EU countries, suggesting that greater financial development and a stronger investment climate offers young firms greater access to bank financing. Next, we show a link between a firm’s ability to obtain a loan and make new investments. Furthermore, we find that firms that report a need for credit, but did not apply for a loan, have the lowest incidence and amount of investment. Our results highlight the important role that the business environment can play in supporting wider access to external finance and greater private sector investment.

Number of Pages in PDF File: 25

Keywords: Access to Finance, Debt Market, Banks & Banking Reform, Financial Intermediation

JEL Classification: G32, H32, O16

Accepted Paper Series