Access to finance, under-investment and productivity in smaller firms

Read more in 'Understanding how constraints on access to finance and under-investment impact on productivity growth in smaller firms'.

Almost 60% of the UK working population depends on the small business sector for its income, yet long-term lenders’ unwillingness to invest in small to medium-size enterprises (SME) has been a persistent problem. With the tech revolution having paradoxically led to stagnant productivity in most developed countries since 2005, a trend worsened by the global financial crisis, the link between under-investment and productivity growth in SMEs is not fully understood. More exposed to the economic shock of the financial crisis, the fundamental importance of small firms to the British economy was further underlined by the disruptions of Brexit and the Covid-19 pandemic.   


The project aims to build a nuanced picture of the financing and productivity of the approximately 6 million SMEs in the UK. In tracing out the whole process by which smaller firms seek investment and funding opportunities, the research aims to develop understanding of how this process enables productivity-enhancing growth as well as poses problems for SMEs. The project also aims to have its research findings shaped by non-academic partners, with the hope of informing evidence-based decisions by policymakers as well as the business community itself.

With nearly £2 million in funding, the three-year project that commenced in June 2022 is managed by a consortium of six UK universities in collaboration with key stakeholders beyond academia. The project work taking place at the University of Sussex Business School, funded for £250,000, is being delivered by Professor Radu Tunaru and Professor Ranko Jelic, both from the Department of Accounting and Finance.

Research Approach

The project uses a core dataset of all private limited companies in the UK between 1998 – 2021. This was developed by the Sussex researchers over a long period, using bulk data from Companies House, credit reference agencies, hand-collected databases and online sources. This core dataset matches firm-level data on SME type, investment stage, sector, region and other characteristics with:

  • All known finance equity deals since 2011 tracked by the Beauhurst and Zephyr databases
  • Data on private equity-backed buyouts since 1998 compiled by the Centre for Management Buyout Research
  • Variables for individual company directors as well as the composition and experience of company boards that factor into investor decisions

In combining these datasets, the researchers will analyse evidence of specific market failures, the profile of those firms most affected by these failures, as well as the impact of investments on firm performance and productivity. 

Impact and Outreach

The research into the nature of market failures in capital, debt and equity financing of UK SMEs will be of direct interest to policymakers, e.g. at the UK Government Department for Business, Energy and Industrial Strategy (BEIS) with whom the project has been co-designed, as well as public finance economists. The real-time output of high-quality evidence for such research users beyond academia will be highly relevant to SMEs and their understanding of their finance and investment choices.

Further Info

A consortium consisting of the University of Sussex alongside Leeds, Bath, Oxford Brookes, Edinburgh and Warwick universities, as well as stakeholders beyond academia including the Scottish Parliament, Equifax, FinTech Scotland, Global Open Finance Centre and Lending Crowd; the PI is Oxford Brookes University’s Professor Marc Cowling and co-investigator Professor Nicholas Wilson at the University of Leeds.

In addition to the University of Sussex’s professors Radu Tunaru and Ranko Jelic who will contribute to project work packages 4 and 5, the team also includes fellow external co-investigators Dr William Fraser (Warwick), Dr Raffaella Calabrese (Edinburgh), Dr Weixi Liu (Bath), and Dr Ross Brown (St Andrews).

The project is funded by the Economic and Social Research Council (ESRC) in pursuit of its ‘Productivity Theme’, further information on the project can be found here