Bank Lending, Financing Constraints and SME Investment

41 Pages Posted: 10 Sep 2008 Last revised: 14 May 2014

See all articles by Francisco Rodriguez-Fernandez

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Date Written: November 12, 2008

Abstract

Investment opportunities depend on the level of financing constraints. Earlier research has mainly focused on the controversial argument that cash flow-investment correlations increase with the level of these constraints. We side-step this controversy by focusing on bank loans rather than cash flow based on the argument that access to bank lending reduces financing constraints. We also focus on a subset of firms that are likely more vulnerable to financing constraints, small and mid-sized enterprises. Our results show that bank loans predict investment for unconstrained firms, but not for constrained firms, and trade credit predicts investment, but only for constrained firms.

Keywords: SMEs, financing constraints, bank lending, trade credit, predictability

JEL Classification: G21, D21, L16

Suggested Citation

Rodriguez-Fernandez, Francisco and Udell, Gregory F. and Carbo-Valverde, Santiago, Bank Lending, Financing Constraints and SME Investment (November 12, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1247282 or http://dx.doi.org/10.2139/ssrn.1247282

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Santiago Carbo-Valverde (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

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