On the Growth of Micro, Small and Medium-Sized Firms

On the Growth of Micro, Small and Medium-Sized Firms in Central and Eastern Europe: A Dynamic Panel Analysis

Miroslav Iordanov Mateev, Yanko Anastasov


Mateev, M. and Anastasov, Y. (2011), On the Growth of Small and Medium Sized Enterprises in Central and Eastern Europe: A Dynamic Panel Analysis, Banking and Finance Review, 3(2), 81-104.



The purpose of this paper is to explore the main determinants of growth in small and medium-sized enterprises (SMEs) in Central and Eastern Europe. The empirical research has suggested that firm growth is determined not only by the traditional characteristics of size and age but also by other firm specific factors such as indebtedness, internal financing, future growth opportunities, process and product innovation, and organizational changes. Limited empirical evidence has been provided as to which of these determining factors is associated with SMEs growth and performance in transition economies. Using a panel dataset of 4,561 small and medium-sized enterprises from seven transition economies we find evidence that firm size and age can explain to a large extent the growth in SMEs in these countries. When we control for other firm specific characteristics and macroeconomic factors, the size-age-growth relation remains stable and significant. We also find evidence that high-growth firms rely more on external sources of capital to support their growth in sales as compared to low-growth firms where the opposite holds. Firms growing faster during the observed period show a significantly larger sensitivity to cash flows.