Is it worthwhile applying for a rescue plan? A PSM analysis for European SMEs

Small and medium-sized enterprises (SMEs) play an important role in most economies worldwide (Ayyagari et al., 2007; Burgstaller and Wagner, 2015). In the European Union, around 99% of the economic activities can be traced back to SMEs, which account for two-third of all jobs in the private sector (Gama and Geraldes, 2012). In 2015, nearly 23 million SMEs generated a value added of €3.9 trillion and employed 90 million workers. SMEs therefore form the backbone of the EU28 economy (European Commission, 2016).

In Europe, in 2012, more than 600 bankruptcies were declared each day (European Commission, 2012). According to the European Union (2016), an average of 200,000 firms go bankrupt each year in Europe. Regarding the economic, financial and social consequences on the global economy of bankruptcies, positioning itself upstream of the process with preventive procedures may generate beneficial effects.

The aim of this research is to investigate the rescue process of the firm facing difficulties generalized at the European level and called the "rescue plan." It is a matter of describing, analysing and understanding the process of prevention of difficulties and its evolution in order to understand the effectiveness of this mechanism.

We use a sample of 35,085 European small and medium-sized firms, that voluntarily contacted the competent authority in order to activate the “rescue plan.” This means that the company remains active; it is not involved in insolvency proceedings, but in a period of protection. One of the conditions is that the company is not in default of payment. This proceeding starts on the initiative of the debtor to benefit from a suspension of credit lawsuits. Here the terms of loans are reviewed through a negotiation with creditors. The target is to prevent financial difficulties which endanger survival of the company.

The effectiveness of this approach is evaluated through the propensity score matching (PSM) method. To our knowledge, this method has never been used for the study of this issue. PSM has a number of comparative advantages in such analysis, including the need to allow for heterogeneous impacts, while optimally weighting observed characteristics when forming a comparison group. The average direct “advantage” to the participants is estimated at around 5.2%. This means that firms asking for a rescue plan register a 5.2% higher chance of surviving compared to similar (on some pre-settled characteristics) firms that do not.