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<p>Islands are distinct entrepreneurial ecosystems, which often share structural features with rural contexts, including limited access to capital and support institutions that constrain firm growth. Building on the “liability of distance” framework, this paper examines whether island-based firms encounter stronger financial constraints than those on the mainland. Using a large, international sample of firms from various European islands, the empirical analysis confirms that firms on islands, especially less densely populated and more rural ones, face stronger financial constraints than their continental counterparts, though this effect is observed mostly in the COVID-19 context. Notably, these financial constraints also shape the impact of trade credit on growth. The observed financial constraints are most pronounced on remote islands, but do not significantly differ between small and medium-sized enterprises and larger firms. The results are robust across instrumental variable estimations and coarsened exact matching. </p>

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Entrepreneurship at the periphery: financial constraints, firm growth, and the liability of distance in island contexts

  • 期刊论文

  • 发表日期：

    2025年12月10日

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  • Vivien Lefebvre

摘要

Islands are distinct entrepreneurial ecosystems, which often share structural features with rural contexts, including limited access to capital and support institutions that constrain firm growth. Building on the “liability of distance” framework, this paper examines whether island-based firms encounter stronger financial constraints than those on the mainland. Using a large, international sample of firms from various European islands, the empirical analysis confirms that firms on islands, especially less densely populated and more rural ones, face stronger financial constraints than their continental counterparts, though this effect is observed mostly in the COVID-19 context. Notably, these financial constraints also shape the impact of trade credit on growth. The observed financial constraints are most pronounced on remote islands, but do not significantly differ between small and medium-sized enterprises and larger firms. The results are robust across instrumental variable estimations and coarsened exact matching.