How to set listing criteria for small and medium-sized enterprises in Hungary?

Abstract

Since the onset of the crisis, several studies have demonstrated that the positive effect of bank lending on economic growth is limited. After a certain level, financial deepening has no positive effect on the real economy, and moreover the financial sector may actually have a negative effect on growth. Therefore, providing more diversified financing opportunities for the corporate sector is of key importance, especially for small and medium-sized enterprises (SMEs). The Budapest Stock Exchange (BSE) is taking a step in this direction now, by establishing a new stock exchange strategy for the next five years, i.e. it intends to actively open towards the SME segment as well. The objective of the study is to create a scoring system that may assist in finding those companies ‒ primarily in the SME sector ‒ for which it may be worth considering going public. We develop and test a quantitative scoring and ranking method on a database containing Hungarian corporate balance sheet and profit and loss account data. We present that there are companies in the SME sector for which it may be worth considering going public; moreover, the group of the top companies based on the ranking had better performance in the past than the companies currently appearing in the T and standard categories of the BSE.