Does a country's environmental policy affect the value of small and medium sized enterprises liquidity in the energy sector?

Abstract

Abstract Cash management is important for energy SMEs, which, differently from large firms, face severe financial constraints and need to seize growth opportunities to ensure their survival. This paper, analyzing a large sample of European energy SMEs, finds a positive effect of holding a buffer of cash on firm performance. It shows that a stock of cash allows energy firms to prevent negative contingencies and/or achieve valuable growth patterns and investments. Moreover, considering that the energy industry is involved in environmental sustainability policies promoted by national governments, we find that complying with environmental regulations reduces the value of cash. Countries that pay more attention to environmental issues provide energy SMEs with growth opportunities and financial support, reducing the need to hold a stock of cash. A key implication is that, in a context with high environmental concern, energy SMEs have more financial flexibility to guarantee their growth with positive externalities for the energy sector.

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