Measuring the opinion of firms on the supply and demand of external financing in the euro area

The financial crisis has generated renewed interest in how tensions in financial markets affect firms’ financing. In this respect, the EC/ECB survey on the access to finance of small and medium-sized enterprises (SAFE) provides rich material for investigating firms’ financing patterns and constraints within the euro area. Composite indicators thereby present a useful analytical tool to obtain an overall picture of developments in the external financing markets across a wide range of financing instruments. The paper develops a composite indicator capturing perceived changes in the needs and availability of external financing of firms as well as in the match (or mismatch) between the two. Moreover, making use of the richness of information provided by the SAFE, it further relates this composite indicator to major firm characteristics (e.g. firm size, age, sector, firm ownership) to investigate potential differences across firms and countries. JEL classification: E22, G10, G30, O16