European SMEs, Corporate Finance and Economic Resilience to Floods

Working paper 832
Working Papers

Published: 25 March 2025

By: Flavio de Carolis Vinzenz Peters

We investigate how leverage and the debt maturity structure of SMEs influences their resilience to floods. Using a dataset of six million geo-coded firm-year observations across nine European countries and granular flood maps, we employ dynamic difference- in-differences estimators to assess the economic impacts of floods and the mediating effects of leverage and debt maturity. Our findings highlight a non-linear relationship between leverage and resilience. SMEs with high levels of short-term debt and low levels of long-term debt show more severe reductions in their post-flood employment growth.

Keywords: Economic Resilience; Climate Change; Floods; Leverage; Small- and Medium-Sized Enterprises
JEL codes G32; J21; Q54

Working paper no. 832

832 - European SMEs, Corporate Finance and Economic Resilience to Floods

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Highlights:

  • We analyse how differences in leverage and debt maturity affect the flood resilience of SMEs in Europe.
  • Using a dataset of 6 million geocoded firm-year observations and spatially granular data on 26 major flood events, we estimate the dynamic impact of floods on SMEs and the mediating role of firm financial structure using event study models.
  • Floods have a statistically and economically significant negative impact on several dimensions of SME performance, including employment growth, asset growth, turno-ver and income.
  • We find a non-linear, inverted U-shaped relationship between pre-shock leverage and the extent to which employment growth is stunted in flood-affected SMEs.
  • Debt maturity plays a central role: In particular, SMEs with high levels of short-term debt and low levels of long-term debt are less resilient to floods.

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