Lending infrastructure and credit rationing of European SMEs

We examine the influence of countries’ lending infrastructure on credit rationing for European SMEs (small and medium sized enterprises). This lending infrastructure, conceptualised by Berger and Udell [2006] is comprised of a country’s information, legal, judicial, bankruptcy, social and regulatory environment. Using a sample of 13,957 SMEs from eleven European countries, we find that SMEs in countries with more efficient judicial systems, less efficient bankruptcy systems and with greater levels of trust are less likely to be credit rationed. The results are robust for different forms of credit rationing and different measures of lending infrastructure. The paper also shows some variation in the results across different sub-samples, considering firm size, age and riskiness. We also exploit the variation between core and periphery European countries and the peculiarity of the sovereign debt crisis period.