EIB Working Papers 2019/03 - Financing and obstacles for high growth enterprises: the European case
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EIB Working Papers 2019/03 - Financing and obstacles for high growth enterprises - European Investment Bank
About the European Investment Bank
The European Investment Bank is the world’s biggest multilateral lender. The only bank owned by and representing the interests of the EU countries, the EIB finances Europe’s economic growth. Over six decades the Bank has backed start-ups like Skype and massive schemes like the Øresund Bridge linking Sweden and Denmark. Headquartered in Luxembourg, the EIB Group includes the European Investment Fund, a specialist financer of small and medium-sized enterprises.
Financing and obstacles for high growth enterprises: the European case
The findings, interpretations and conclusions are those of the authors and do not necessarily reflect the views of the European Investment Bank.
Financing and Obstacles of High Growth Enterprises: the European case
Annalisa Ferrando*, Rozalia Pal** and Elena Durante***
Abstract
This paper investigates the links between alternative growth phases of firms and barriers to financing and investment using firm-level information for a representative sample of EU companies. We propose a novel classification of corporates: high growth (HGEs), stable and declining enterprises. We find that during the phase of high growth, firms are on average more financially constrained. To match their needs for external finance, HGEs are more likely to apply for equity financing. Furthermore, we identify firms with high growth potential. Using survey data, we investigate the barriers to investment activities faced by actual and potential HGEs. Our findings suggest that the most stringent obstacles for actual HGEs are the availability of skilled staff and business regulations, while potential HGEs are blocked by uncertainty about the future.
Keywords: High growth enterprises, financing conditions, bank financing, equity financing, obstacles to investment.
JEL Classification: D22, G01, G20, G32
* European Central Bank
** European Investment Bank; Corresponding author: r.pal@eib.org
*** European Central Bank and University of Rome La Sapienza
We thank Laurent Maurin and Marcin Wolski for valuable comments and suggestions. The opinions expressed herein are those of the authors and do not necessarily reflect those of the European Investment Bank or the European Central Bank or the Eurosystem.
1.Introduction and related literature
High growth enterprises (HGEs) are of interest to researchers and policymakers because of their important role in contributing to economic growth and job creation (Birch, 1987). However, there is no consensus in the literature about the exact definition of HGEs, leading to different and in most of the cases contradictory results on their characteristics. As an example, most studies argue that HGEs are mainly innovative scale-up SMEs, but others dismiss the perception that these companies are generally smaller, younger and technology-based companies.
This study relies on a novel survey-based dataset, the EIB Group Survey on Investment and Investment Finance (EIBIS 2016-2017) of a representative sample of non-financial firms in the EU 28 countries. The survey collects information on different external and internal financial sources, reasons for not getting external financing and types of investment barriers. We match the surveyed firms with financial variables from balance sheets and profit and loss statements derived from the BvD ORBIS database for the period 2003-2016. Our study relies on around