Our PhD student, Cem Soner, presented his research at the British Accounting and Finance Association's (BAFA) IPSIG Doctoral Colloquium on 3rd July 2023. The conference aimed to bring together outstanding postgraduate researchers and early career researchers interested in interdisciplinary and critical perspectives on accounting and finance. The event was hosted by the Birmingham City University Business School.
Cem presented his research paper entitled "The Impact of Brexit on SME Lending in the UK," and it was well-received by the audience, generating a lot of interest among the attendees, including prominent scholars in the field of accounting and finance. The presentation was praised for its originality and policy insights in revealing Brexit's detrimental impact on small business lending, with a focus on regional disparities.
Cem's research focuses on Brexit's impact on small and medium-sized enterprises (SMEs), which constitute 99% of the businesses and 60% of the employment in the UK economy. The study utilizes a difference-in-differences method with fixed effects and finds a quarterly lending contraction of 1.35% for small businesses in the immediate aftermath of the Brexit vote (2016-Q3) relative to a set of comparable European countries that have a considerable trade relationship with the UK. The lending contraction is also significant in the other two quarters of interest, 2017-Q1 (Article 50 process) and 2018-Q3 (Salzburg Summit).
The study also explores Brexit's impact within the UK and investigates whether there are any disproportionate effects across Local Authority Districts (LADs). He employs a difference-in-differences method with fixed effects and finds a yearly lending contraction of 4.8% for rural LADs and 6.1% for peripheral LADs in 2016. The results are also significant for the following years after the referendum, but the adverse effect diminishes over time.
Cem also examines whether there is an excessive small business lending contraction in the LADs that have a high proportion of EU exports per capita due to trade uncertainty caused by Brexit. The analysis demonstrates that small business lending has contracted in the top 15th Exporting LADs by 3.2% in 2016 and by 5.2% and 2.2% in the following consecutive years. This result is also robust for the top 25th Exporting LADs.
However, the results are not significant for LADs with a higher total trade per capita, which further supports the hypothesis of decreasing lending in EU Exporting LADs due to trade uncertainty with the EU, rather than the rest of the world.
The results of this study will inform and enrich the ongoing debate on Brexit's impact on the UK economy. The empirical findings confirm that Brexit has a significant impact on small businesses, and there is robust evidence of regional disparity across the UK, where rural and peripheral areas are excessively affected by the adverse shock. The results suggest that policymakers should recognize this unequal impact across regions while designing policies that ease access to finance for SMEs, thereby "levelling up" the UK economy by supporting small businesses in peripheral and rural areas.
The colloquium was a valuable experience for Cem and helped him network with other scholars in his field and receive several positive comments. He is grateful for this opportunity and looks forward to continuing his research in finance.