Credit rationing and SMEs' environmental performance in transition and developing countries

This paper investigates the relationship between credit constraints encountered by small- and medium-sized enterprises (SMEs) and their propensity to engage in pollution prevention and control practices in developing and transition countries. Using data from the Enterprise Surveys conducted in 2018-2020 and applying a Poisson model, we find that credit rationing is negatively associated with SMEs' environmental performance. However, family ownership, human capital, and political networks seem to mitigate this negative relationship. Therefore, credit rationing appears particularly detrimental for the environmental footprint of those firms, which are less likely to pursue nonfinancial goals, and have a lower capability to seize green investment opportunities by successfully accessing and using alternative means of financing. Our study provides insights for policy makers to promote policy aimed at encouraging national and international financial institutions to provide SMEs funds for green practices. Moreover, governments should support training programs to improve SMEs employees' skills.