The Use of Leasing in Financially Constrained Firms: An Analysis for European SMEs

Abstract

Severe informational asymmetries, small size, unreliable financial statements and lack of collateral hamper the access of SMEs to traditional sources of debt financing. We use a survey data set of 4,583 SMEs from 25 European countries to analyse whether the use of leasing as a form of financing could fill the financing gap of constrained SMEs. We do so analysing whether the use of leasing by SMEs is triggered by the existence of financial constraints. Our findings indicate that after controlling for firm, bank and country-specific characteristics the likelihood of using leasing increases for financially constrained SMEs, which confirms our hypothesis. This paper contributes to the debate about differences in the use of lease financing between constrained and unconstrained SMEs, providing to the best of our knowledge, the first international evidence using a survey assessment of self-declared financial constraints for SMEs.