Credit Constraints, Heterogeneous Firms and Loan Defaults: Micro-evidence from Agriculture in Slovakia

Agricultural sector is perceived to have more difficult access to finance than other sectors of the economy. We test and confirm this hypothesis for EU transition economies, using a unique firm-level panel data of 700 bank loans given to agricultural and non-agricultural SMEs in Slovakia between 2000 and 2005. Probit estimation results suggest that on average the primary agricultural and food processing SMEs do not exhibit higher default rate than other sectors’ SMEs. However, highly indebted agricultural and food SMEs are more likely to default than their counterparts in other sectors. Controlling for firm heterogeneity we find that firms in agriculture and food processing are more credit constrained due to higher risk present in this sector. By contrast, we provide some evidence that the EU accession decreased default rates for primary agricultural producers, especially for low indebted agricultural SMEs.JRC.DDG.J.3-Knowledge for Growt