Investigating the Relationship Between Financial Constraint and Growth of SMEs in South Eastern Europe

This study investigates the determinants of financial constraint and its impact on the growth of small and medium-sized enterprises (SME) in South Eastern Europe (SEE). In this study, enterprise data from the fifth round of the Business Environment and Enterprise Survey (BEEPS V) undertaken in 2012-2016 were used, and an empirical analysis including ordered probit, probit, and feasible generalized least squares (FGLS) specifications was conducted. The findings evidence that financial constraint is significantly detrimental to SME growth in the region. Moreover, SMEs operating in trade sector perceive access to finance comparatively less, whereas mature enterprises perceive it as more constraining. Among country-specific factors, high banking sector concentration adversely affects access to finance, whereas more domestic credit provided to private sector mitigates the financial constraint perception of SMEs.