Estimating conditional treatment effects of EIB lending to SMEs in Europe

Summary

Focus

Small and medium-sized enterprises (SMEs) play a key role in the economy of the European Union. Yet, SMEs often find it more challenging to access finance than their larger peers. The gap between the demand for credit from financially viable SMEs and the actual credit supply, is known as the "SME financing gap". Among international financial institutions, the European Investment Bank (EIB) stands out in terms of annual lending volumes to SMEs. Previous research has shown that EIB-supported lending has a positive effect on the employment levels, size, investments and innovation capacities of SMEs. However, it remains unexplored whether these impacts vary based on different types of recipients, or by the parameters of the financial support – such as the cost of a loan, its maturity or volume.

Contribution

We shed light on the transmission channels of public support schemes to the SME sector by investigating whether the positive impacts of EIB support vary depending on types of intermediaries and financial term sheets. In particular, we measure if there is a significant difference – in terms of job creation and investment dynamics – attributed to the EIB's support for smaller and younger firms. We further assess the extent to which the positive effects of EIB support can be attributed to longer loan maturities, more advantageous pricing and larger loan volumes.

Findings

We find that in the years after receiving EIB support, smaller and younger firms exhibit stronger growth in employment and fixed assets than their bigger or older peers. Our results also show that the terms of EIB loan agreements play a pivotal role. The benefits of EIB support appear to be linked to longer loan maturities. Moreover, better pricing conditions are associated with a stronger effect on employment and fixed assets growth. We do not find evidence that the effects vary depending on loan size.

Abstract

We estimate heterogeneous treatment effects of the EIB fnancial support on European firms between 2008 and 2015. The relevant control groups are created with propensity score matching and the effects are estimated in a difference-in-differences framework, controlling for firm-level and country-sector-year fixed effects. We find that the positive effects of EIB-supported lending on job creation and investments were larger for smaller and younger firms. Moreover, we find evidence that longer maturities and more advantageous loan pricing are associated with larger employment and investment effects, while no larger impact is observed for larger loan volumes. Overall, the results suggest that benefits of the EIB support are rather observed on an intensive, rather than on an extensive, margin.

JEL classification: G38, G21, G23.

Keywords: SMEs, EIB, intermediated loans, impact assessment, conditional treatment effects, difference-in- differences.