Financing Small and Medium-sized Enterprises in Eastern Europe

Abstract

This chapter focuses on small and medium enterprises in transition economies and analyses the specific problems they face in obtaining external funds. The financial structure of Czech firms is analysed and it is shown that small and medium-sized enterprises rely much more on internal resources than large ones, probably due to higher interest rates and transaction costs. These results are in line with what has been found by Mayer (1990), concerning developing countries and Corbett and Jenkinson (1994), concerning developed countries. This chapter goes on to study whether there are specific inefficiencies in credit and capital markets in transition economies in eastern Europe, which affect financing opportunities for small and medium-sized enterprises. The focus is on legal frameworks regulating credit and capital markets, and on the information contexts of small and medium-sized enterprises in transition economies, and their underdevelopment.