Credit constraints in European SMEs: does regional institutional quality matter?

We analyse the investment-to-cash flow relationship in Europe using a sample of manufacturing small- and medium-sized enterprises (SME) over period 2009–2016. investigate effect regional institutional quality on sensitivity, finding that, although credit constraints remain serious problem for European SMEs, high-quality institutions contribute to mitigate dependency internally-generated resources finance new investments. Improvements local can therefore facilitate SMEs’ access – e.g. through inter-firm trade relationships –, but are insufficient overcome restrictions faced by SMEs.