A Firm-Level Analysis of Small and Medium Size Enterprise Financing in Poland

43 Pages Posted: 20 Apr 2016

See all articles by Leora F. Klapper

Leora F. Klapper

World Bank; World Bank - Development Research Group (DECRG)

Virginia Sarria-Allende

IAE Business School - Universidad Austral

Rida Zaidi

Fitch Ratings Inc.

Date Written: August 1, 2006

Abstract

The authors test competing theories of capital structure choices using firm-level data on firm borrowings. The majority of firms in the dataset are privately owned, young, micro or small and medium enterprise (SME) firms concentrated in the service sector. In general, the financing pattern of firms is low leverage ratios and, in particular, low levels of intermediated financing and long-term financing. Average firm growth rates decreased during the five years of the sample period. Average profitability growth ratios are also negative across age and sectors and large firms have the highest negative profit growth rates. Statistical tests find a positive firm size effect on financial intermediation. Larger firms have higher leverage ratios (both short term and long term), including higher use of trade credit. There is also a negative influence of profitability on leverage ratios (more profitable firms use less external financing), which supports the pecking order theory that in environments with greater asymmetric information (such as weaker credit information) firms prefer to use internal or inter-firm financing. Finally, firms operating in a competitive environment have higher leverage ratios. For instance, young, small firms are the most active employment generators in the Polish economy. In particular, the authors find that although SMEs seem to be very active in creating jobs in recent years. This suggests that a new type of firm is emerging that is more market and profit-oriented. But at the same time, these firms appear to have financial constraints that impede their growth. Improvements in the business environment, such as better credit and registry information, could help promote growth in this sector.

Suggested Citation

Klapper, Leora F. and Sarria-Allende, Virginia and Zaidi, Rida, A Firm-Level Analysis of Small and Medium Size Enterprise Financing in Poland (August 1, 2006). World Bank Policy Research Working Paper No. 3984. Available at SSRN: https://ssrn.com/abstract=922464

Leora F. Klapper (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-8738 (Phone)

HOME PAGE: http://econ.worldbank.org/staff/lklapper

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Virginia Sarria-Allende

IAE Business School - Universidad Austral ( email )

Buenos Aires
Argentina

Rida Zaidi

Fitch Ratings Inc. ( email )

One state street plaza
New York, NY 10004
United States

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