Determinants of the Financing Obstacles Faced by SMEs: An Empirical Study of Emerging Economies

Ab stract: Small and medium sized enterprises (SMEs) play a crucial role in the economic development of emerging countries. The lack of access to finances is one of the important growth constraints the SMEs face. This study investigates the firm and country specific determinants of the financial constraint levels of SMEs in selected emerging Western Balkan economies. The main determinants of the financing obstacles examined in the sampled countries were: firm size, ownership type, and age, accounting information transparency, the depth of credit information indexes, the banking sector concentration, property registration costs; and per capita GDP. The findings confirm that firm size is a significant determinant of the financial constraint levels of SMEs in the selected economies. Moreover, we found that older firms are financially more constrained in the region. The possible economic implications of the positive association between firm age and financial constraint are discussed. Banking sector concentration level plays crucial role in the external financing of SMEs in developing countries. By closely examining the firm characteristics and country-level factors that determine the degree of the financing obstacles faced by SMEs, we observed that in developing economies overall institutional and financial problems are more important than firm-specific