European SMEs, Corporate Finance and Economic Resilience to Floods

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.