Environmental sustainability policies and the value of debt in EU SMEs: Empirical evidence from the energy sector

This study, based on 12,615 small and medium-sized enterprises (SMEs) operating in the energy sector in 26 European countries, investigates how country level environmental sustainability policies moderate the magnitude of the effect of debt on the value of European energy SMEs. The study aims to understand whether the degree of national attention to environmental sustainability is relevant per se, and affects the value of debt. We first empirically find that the use of debt reduces European energy SMEs' performance, indicating that in the energy sector, the costs of raising debt outweigh the relative benefits. Second, we observe how such effect surprisingly shifts from negative to positive, improving SME performance, when a strong environmental commitment exists at the country level. Thus, our findings suggest that although countries implementing policies to enhance environmental quality constrain SMEs in improving their production systems, they promote SMEs' financial efficiency through the valuable use of debt. (C) 2020 Elsevier Ltd. All rights reserved.