How well do European loan markets work? Some insights from the financial structure of SMEs in three countries

A striking result is the similarity of the findings for France and the UK. In both countries, bankers prefer (to a similar extent) to lend against fixed assets and to companies with higher liquidity. We find no evidence of banking relationships developing over time that improve the availability of debt finance. On the contrary, in both countries higher profitability reduces gearing, as does company age (actually company size is significant in France, but this is correlated with age). This means that companies use retained earnings to lower the level of bank debt they carry.