Skip to main navigationSkip to main content
The University of Southampton
Public Policy|Southampton

Banking on Industry

SMEs

Project Outline

There are more than 20 million Small and Medium-sized Enterprises (SMEs) in the EU, and they represent 99% of all businesses. Why are there so many of them? How are they distributed? And what are the conditions for their growth? This research project analyses how the structure of the banking system determines the size and distribution of SMEs in local markets, with a focus on the high-tech sector. So far there have been no attempts to deal with the analysis of the conditions in which SMEs can flourish, and how and to what extent geography and banking features influence the growth of SMEs. The timing of banking-related research on SMEs is highly expedient, as SMEs are experiencing difficulties in the recovery process after the 2008 Global Financial Crisis (GFC), and are strongly dependent on bank financing. Moreover, the GFC has also highlighted the fragility of the current banking system and has shifted the debate of policy makers again towards the role of traditional and local banking for economic growth, and the access to credit of SMEs. Furthermore, evidence from the GFC shows that manufacturing firms that operate in local markets where a large share of branches is owned by distantly managed banks have experienced a sharp reduction in their supply of credit. These considerations lead to the following questions: first, what is the impact of the banking industry on the access to credit and growth of SMEs?; second, do SMEs need small banks? Both questions directly relate to the goal of Horizon 2020, which is to spur sustainable and inclusive growth and jobs, and remove barriers to innovation. The current paper empirically addresses these research questions. The dataset is based on secondary data from: the Bank of Italy, the Italian Banking Association (ABI), Italian National Institute of Statistics (ISTAT), Movimpresa and a database of newly established SMEs in the region of Limburg, the Netherlands, together with Maastricht University.

The project offers new insights on the importance of the location of SMEs in a specific financial and economic environment for their productivity, growth, and competitiveness. In particular, it brings important policy implications with it. The European banking system is going through relevant regulatory changes that can affect the lending and business strategies (Basel III, IFRS 9) of banks and integration of the financial system. Understanding the mechanisms through which the banking system affect the local economic growth provides the European Central Bank (ECB) with relevant information to base its regulatory interventions on, particularly those aimed at boosting competitiveness and successfully promoting industrial growth and equality between EU regions. Moreover, in response to the recent Banking Recovery and Resolution Directive, some national authorities (for example the Bank of Italy, Dutch Central Bank) have advocated the aggregation of cooperative banks. Therefore, this paper shows how these changes in the geography and configuration of the banking sector can affect the growth of the industrial sectors and manufacturing innovation.

 

Meet the project team

 

Dr Marta Degl’innocenti University of Southampton 

 

Professor Jaap Bos, Professor of Banking and Finance at Maastricht University, Head of the Department of Finance, School of Business and Economics.

With whom we work

With whom we work

Find out more about research projects Public Policy Southampton are currently working with

Privacy Settings