Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
The Impact of Financing on the Investments of SMEs:
Evidence from the Recent Financial Crisis
Xiaohong Huang1, Rezaul Kabir2 and Siraj Zubair3
This paper examines how the recent financial crisis has affected the
investments of Small and Medium-sized Enterprises (SMEs). We use a
novel dataset of private firms from the Netherlands covering a long timeperiod (2004-2012). The results show that the financial crisis has no
significant impact on the investments of SMEs. When we distinguish
between the influences of internal financing (cash flows) and external
financing (bank debt), we find that investment of SMEs are constrained by
the availability of the cash flows and more determined by bank debt.
Key words: Financial crisis, investment, internal financing, external financing, SMEs
1. Introduction
What is the relationship between financing and investment behaviors of firms? This
question has been debated intensively throughout the world. In a perfect capital
market, a firm is always able to acquire necessary finance at a fair price to finance
their investment (Modigliani and Miller, 1958). But, in reality the perfect capital market
does not exist due to market imperfections such as adverse selection, moral hazards
and agency problems. These market imperfections may restrict a firm’s access to
external finance (Holmstrom and Tirole, 1997), which in turn, might affect their
investment behavior. Understanding investment behavior of firms under imperfect
market conditions is one of the central discussions in financial economics. Studying
this phenomenon can provide insights about the investment behavior of firms as a
function of internal and external finance.
Capital market imperfections may constraint investment and there are possible
interactions between a firm’s investment and financing (Hubbard, 1998). Most studies
during the last three decades ground on investment models in which the assumptions
are based on the perfect market conditions and information asymmetry. This
research strand gave birth of a new direction in the realm of finance-investment
nexus which depicts the relationship between investment and financial constraints of
_________________
1
Assistant Professor, Deartment of Business Administration, University of Twente The Netherlands. Email: x.huang@utwente.nl
2
Professor, Deartment of Business Administration, University of Twente The Netherlands. Email:
m.r.kabier@utwente.nl
3
Corresponding author, PhD candidate, Deartment of Business Administration, University of Twente
The Netherlands. Email: s.m.zubair@utwente.nl
School of Mnagement and Governance, Deartment of Business Administration, University of Twente,
Drienerlolaan 5, 7522 NB Enschede, the Netherlands., Email: s.m.zubair@utwente.nl
Phone: +31 620 607 803
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Proceedings of Global Business and Finance Research Conference
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firms. The study of Fazzari et al., (1988) is one of the first studies in the financeinvestment strand, which empirically tests the effect of financial constraints and
market imperfections on investment. They assume that an increase in asymmetric
information might cause an increase in the cost of acquiring external finance. This
cost advantage bestows a firm the incentive to use internal finance for investment.
When internal finance is not sufficient, a firm needs to use externally generated
finance in order to continue its investment. Hence, the investment of a firm
substantially depends on its internally generated finance (more precisely on its cash
flows and retained earnings).
Previous empirical studies on finance and investment nexus document the following
key findings: (i) financial constraints play a significant role in shaping the investment
of firms; (ii) investment behavior is lumpy and a period of low investment is followed
by large investment spikes; (iii) small firms face more financing constraints than large
and listed firms; and (iv) small firms grow faster compared to their larger
counterparts. Scholars argue that investments of Small and Medium-sized
Enterprises (SMEs) are usually restricted due to the difficulties in obtaining external
finance compared to large and listed firms. These difficulties arise mainly because of
severe market imperfections (e.g. adverse selection, moral hazards and agency
problems) and high transaction costs (Berger and Udell, 1998; Michaelas et al., 1999;
Beck et al., 2008).
These problems may further worsen during a financial crisis. At the end of 2007, the
world has seen one of the worst financial crisis in the history since the ‘Great
Depression’ (Mian and Sufi, 2009; Melvin and Taylor, 2009). From an academic
point-of-view, the recent financial crisis is an interesting enigma which inspired
research in many fields of finance and economics. A significant number of studies
explore the causes of the crisis as well as the consequences. However, studies
analyzing the effects of financing on investment during the financial crisis are limited
and mostly based on publicly listed firms (Akbar et al., 2013). Little attention has
been paid to SMEs for which access to external sources of finance are limited. An
analysis of private SMEs can be more interesting because the financing pattern of
privately held SMEs significantly differs from that of large and listed firms (Beck et al.,
2008). As a result, private SMEs might be affected more when a financial crisis is
underway. To the best of our knowledge, Vermoesen et al. (2013) and Akbar et al.
(2013) are the two studies which empirically investigate the effects of financing on the
investment of SMEs during the financial crisis. Vermoesen et al. (2013) investigate
the financing effects of Belgian SMEs and the effect of debt maturity during the
financial crisis. Akbar et al. (2013) use data of UK SMEs to examine the effect of the
financial crisis on investment. Our study aims to shed more light and further extend
the knowledge-base by investigating private SMEs in the Netherlands.
Similar to the SMEs in other countries, Dutch SMEs are also the growth drivers of the
economy. During the financial crisis, SMEs in the Netherlands were hit harder than
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Proceedings of Global Business and Finance Research Conference
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large businesses (SBA fact sheet, 2010). In the Netherlands, the most common
sources of external finance for private firms are bank loans, supplier credit and
leasing (EIM, 2010). Over the past years, Dutch banks have continuously introduced
tightening credit conditions (Masselink and Noord, 2009). When bank finance is a
major source of capital for SMEs, a reduction in the availability of bank finance
usually would have a significant impact on SMEs’ planned investment and
consequently, growth. Furthermore, facing a difficult time in acquiring bank finance
during financial crisis, Dutch SMEs could have been affected negatively in terms of
investment. However, no previous academic study has examined this issue. We also
contribute to the literature by specifically examining the separate effects of internal
finance (cash flows) and external finance (bank debt) on firm investments. Since, the
Netherlands is a country operating under the creditor-oriented financial system (as
opposed to a market-oriented financial system in the USA or UK), the results of our
study also provide more insights in terms of the firm dynamics in such a financial
system.
The remainder of the paper is organized as follows. Section 2 outlines the
hypotheses. Section 3 describes research methodology followed by a description of
the sample in Section 4. The results are presented in Section 5. Section 6 concludes
the paper.
2. Hypotheses
In an efficient capital market, finances flow efficiently to firms with profitable
investment opportunities. As a consequence, firms with the same investment
opportunities can undertake the same number of investment projects and on average
will grow at the same rate (Kashara, 2008). However, due to market imperfections
the investments of firms could be constrained by firm-specific financial variables or
characteristics other than their investment opportunities (Fazzari et al., 1988;
Bernanke and Gertler, 1989; Kiyotaki and Moore, 1997; Tirole, 2006). According to
recent investment theories, if there are serious imperfections in the financial markets
and firm face different degrees of financing constraints, then two firms with the same
investment opportunities do not grow at the same rate because of their financial
status (Kashara, 2008). The investment is expected to be lower of a firm which is
more financially constrained than others because usually the firm which is financially
constrained would less likely to invest more.
If the market is perfect, a shock to one source of finance has limited or no impacts on
firms as firms can easily access substitute sources. Chen and Hsu (2005), argue that
firms which have access to capital markets are able to accumulate finance and
maintain production. However, firms which have restricted access to capital markets
are accumulating less or no finance and thus lowering investment. They claimed that,
firms who have low collateral, which increases their risk premium and reduced their
output during the credit crunch. They also find that, during the Asian financial crisis
the output decline was greater in SMEs to larger firms. In addition, Domac and Ferri
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Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
(1998) highlight that, financial shocks have adversely affected the economic activities
of Korean firms, and more pronounced on SME’s. Similar results are also reported in
Kim et al., (2002) who find contractions in the credit market for SMEs while finding
insignificant evidence for large firms during the Korean financial crisis. In the context
of the recent financial crisis, research has shown that the credit crisis has negatively
affected the investment of firms (Duchin et al., 2010).
Fluctuation in the supply of external finance may play a significant role in determining
investment decisions. During a financial crisis the supply of bank finances shrinks.
Thus, firms who depend on the bank debt as a major source of external finance
would suffer during a financial crisis. Bank credit supply shocks would affect the
SMEs relatively more because these firms mainly depends on banks for external
finance (Petersen and Rajan 1994, Burger and Udell, 1998) and have limited access
to alternative sources of finance (Bae et al., 2002; Becker and Ivashina, 2010;
Akiyoshi and Kobayashi, 2010). Therefore, when a financial crisis is underway, SMEs
would face financing constraints as credit supply from banks become narrow.
Alternatively, during the financial crisis, the flow of internal finance also decreases
because revenue falls during the period of recessions (Carpenter et al., 1994). A
small fluctuation in revenue causes a large proportionate change in profits, and thus,
in the flow of internal finance to the firm. Therefore, it can be argued that during the
financial crisis, SMEs face severe financial constraints.
The above mentioned scenario tells us that, during a financial crisis, supply of both
external and internal finance to SMEs would shrink compared to the normal state of
the economy. As a result, even though SMEs might have investment opportunity or
desire to invest more, these firms cannot invest due to the lack of finance. Thus, the
following hypothesis is formulated.
H1: Investments of SMEs decline following the onset of the financial crisis.
It is well argued in the finance literature that, a firm should use internal finance over
external finance because of market imperfections and transaction cost. If the internal
finance is not sufficient to meet the required investments, access to external finance
becomes indispensable (Meyer, 2001). Thus, external financial constraints would
play an important role in determining investment choices of firms when internal
finance is scarce or not available. As mentioned earlier, an obvious source of
external finance for SMEs is bank finance and SMEs are mostly dependent on them
(Petersen and Rajan 1994, Burger and Udell, 1998; Carpenter et al., 1994). The
effects of bank finance on investment have been explored in the finance-growth
literature, which assumes that bank finance may foster the investment of firms
(Greenwood and Jovanovic, 1990; King and Levine, 1993). Firms which are
dependent on banks for finance, a small fluctuation in the supply of bank finance
would have a negative effect on their investment (especially collaterally poor and
highly leveraged firms) (Holmstrom and Triole, 1997; Hancock and Wilcox, 1998).
Consequently, the negative effect of credit supply shocks would be stronger on SMEs
during a financial crisis as these firms lack access to other alternative sources of
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Proceedings of Global Business and Finance Research Conference
5-6 May, 2014, Marriott Hotel, Melbourne, Australia, ISBN: 978-1-922069-50-4
bank finance (Bae et al., 2002; Becker and Ivashina, 2010; Akiyoshi and Kobayashi,
2010). As argued before, a firm should only use debt finance when it necessarily
needs because debt finance is not a substitute to internal finance and acquiring debt
finance is difficult and costly. Thus, during a financial crisis, internal finance becomes
a distinct source of finance for investment of SMEs as the external sources are dried
up or become more difficult to obtain. When external finance is costly or rationed, an
additional dollar of internal finance permits an additional dollar of investment for firms
(Carpenter et al., 1994). In line with the investment desire, during a financial crisis
SMEs would be highly dependent on internally generated finance rather on external
finance to fuel their investment. This leads us to formulate the second hypothesis:
H2: Investment of SMEs during the financial crisis is more determined
by internal finance than external finance.
3. Empirical strategy
In order to investigate the effect of financing on SME investment during the financial
crisis, we use the following benchmark OLS regression model:
Yit = α1+ β1 Xit + β2 Zit+ β3 Crisis + β4 (Crisis * ∑ Xit) + μit
(1)
where, Yit is the dependent variable, Xit is the set of main explanatory variables, and
Zit is the set of control variables. Crisis is a dummy variable equal to 1 for the period
2008-2012, and 0 for the period 2004-2007. β1, β2 and β3 are the coefficients indicate
how much the explanatory variables (i.e. financing) influence the dependent variable
(i.e. Investment). β3 indicates how much the coefficient is different in the crisis period
(2012-2008) relative to the pre-crisis period (2004-2007). The interaction term β4
represents the joint effect of financing and the crisis period on investments. μ it is the
error term in the regression.
Sources of heterogeneity (e.g. the size of the firm, age of the firm, growth
opportunities, industry influence, etc.) are used for the measure of control variables
as suggested by various empirical studies.
To test the hypothesis 1 (i.e. estimating the effects of financial crisis on investment),
specification (1) is extended as follows:
Investmentit = α1+ β1 Crisis + β2 Cash flowit + β3 Bank debtit + β4 Sizeit + β5 Ageit
+ β6 Growth opportunityit + β7 Industy + μit …………………………………………….
(2)
Specification (2) will be used to determine the effect of the financial crisis on
investment. The main coefficient of interest here is β1 which is expected to have a
negative effect on investment.
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Proceedings of Global Business and Finance Research Conference
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To test the second hypothesis (i.e. estimating the effects of internal finance and
external finance on investment during a financial crisis), specification (1) is extended
as follows:
Investmentit = α1+ β1 Crisis + β2 Cash flowit + β3 Bank debtit + β4 Sizeit + β5 Ageit
+ β6 Growth opportunityit + β7 Industy + β8 (crisis * Cashflowit) + β9 (crisis *
Bank debtit) + μit ………………………………………………………………….
(3)
In equation (3), the main coefficients of interest are β8 and β9. Where β8 is the
interaction effect of cash flow and crisis on investment and a positive significant
relationship is expected. β9 is the interaction effect of bank debt and crisis on
investment and a negative relationship is expected. All variables used in this study
are defined in table 1.
4. Sample
The data used in this study are collected from Bureau van Dijk’s REACH database.
The database contains detailed financial information on private and publicly
incorporated businesses in the Netherlands. Since our objective is to investigate the
Table 1: Variable descriptions
Variable
Investment
Bank debt
Cash flow
Growth opportunity
Size
Age
Crisis
Descriptions
Increase in tangible fixed assets plus depreciation over beginning
year total assets
Total bank debt over beginning year total assets
Income after tax plus depreciation over beginning year total assets
Change in total asset over beginning year total assets
Book value of total assets
Number of years since incorporation (as of 2012)
Dummy variable equal to 1 for the period 2008-2012, 0 otherwise
effects of financing on the investment of private SMEs during the period of financial
crisis, only data of private firms are collected over the period of 2004–2012. To
select the SMEs, we follow the definition of ‘European commission’ i. It classifies
firms into small category when it has between 10–49 employees and €2–10 million
turnover or total assets, and medium category when it has between 50–250
employees with maximum €50 million turnover or €43 million total assets. We have
selected firms as SMEs when a firm at least satisfies two conditions over the period
of 2004-2007. We did not use the EU definition over 2008-2012 period for the
following reasons; (1) due to the negative effect of the financial crisis a large firm may
become a SME and (2) this study only focusing on the adverse effect of the financial
crisis on SMEs. Thus, defining SMEs based on 2004-2007 period best satisfies the
objective of this study.
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Proceedings of Global Business and Finance Research Conference
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Firms included in the sample which are alive or active during the sample period. The
youngest firm in the sample is 9 years old as we selected firms which are at least 5
years before the crisis. Firms which are operating in the financial sector (e.g. banks,
insurance companies, public investment trusts) are excluded from the data set
following previous studies (Rajan and Zingales, 1995; Brav, 2009). Non-for-profit
organizations and governmental enterprises are also excluded. Following Duchin et
al., (2010) and Vermoesen et al., (2012), for firms, whose total assets become double
in one of the years of the sample period, are excluded, to omit mergers or other
significant restructuring. Following Vermoessen et al., (2012), firms with negative
equity are excluded. Companies with only consolidated account are selected to allow
comparison across the results of prior studies. After applying all of these sampling
techniques, the final sample includes a total of 469 private firms.
Table 2 presents the industrial distribution of the firms in the sample. The largest part
of the sample consists of wholesale and retail firms (26%). There are substantial
number of firms in heavy manufacturing (21%), construction (20%), light
manufacturing (16%) and transportation (11%). The other category consists of only
2% firms consist of agricultural and mining firms.
Table 2: Industry classification
SIC two digit
codes
0-14
15-17
20-28
30-39
40-49
50-59
70-75
4.1
Industry
Agricultural and mining
Construction
Light manufacturing
Heavy manufacturing
Transportation
Wholesale and retail trade
Services
Total
No. of firms
% of firms
10
93
73
98
51
121
23
469
2
20
16
21
11
26
5
100
Descriptive statistics
Table 3 presents the summary statistics. All variables are winsorized 1% on both tails
to exclude the influence of outliers. The average yearly investment is 6.3% of the
total asset. The table shows that the average amount of bank debt (sum of short-term
and long-term bank debt over total assets) of sample firms are quite high (53%). The
finding implies that the private SMEs in the Netherlands use more debt than equity
and bank debt can be identified as a significant source of external finance. The
higher debt ratios of Dutch SMEs reflect the fact that these firms cannot access
public capital markets and have less internal finance. The sample firms are
characterized by mature firms as the average age of firms in the sample is 38 years.
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Proceedings of Global Business and Finance Research Conference
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Table 3: Descriptive statistics
Variable
Obs
Mean
Median
Std
Min
Max
Investment
Bank debt
Cash flow
Growth opportunity
Size (€ millions)
Age
1643
1641
1643
1643
1643
469
0.063
0.536
0.101
0.115
17.472
38
0.026
0.554
0.089
0.083
15.226
27
0.088
0.195
0.096
0.194
10.388
31
0.001
0.050
-0.153
-0.366
3.717
9
0.395
0.938
0.474
0.800
60.070
321
In Table 4, Pearson correlation coefficients between the variables are presented. The
results show that SMEs which invest more tend to use more bank debt and less cash
flow. Cash flow is negatively correlated with investment (-0.09) and Bank debt (0.13). Bank debt is found to be negatively associated with age, whereas conventional
view that mature firm would get more bank finance.
Table 4: Correlations among variables
Variable
Investment
Bank debt
Cash flow
Size
Age
Growth opportunity
1
1
0.064*
-0.077*
0.117*
0.011
0.499*
2
3
4
5
6
1
-0.098*
-0.165*
-0.114*
0.134*
1
-0.250*
-0.046
0.019
1
0.075*
0.053*
1
-0.052*
1
The table shows Pearson correlation coefficients. All variables are defined in Table 2. * indicates
significance at 5% level
5. Results
Tables 5 and 6 present the regression results of the relation between investment and
financing of SMEs. In all regressions, the dependent variable is the increase in
tangible fixed assets scaled to total assets. All models use log of size, log of age,
growth opportunity and industry influence as control variables. First, we investigate
whether the SMEs in the sample reduced their investments during the period of
financial crisis (2008-2012). All equations in table 5 show that crisis has no significant
effect on investment. Firm size, age and growth opportunity have statistically
significant positive relationship with investments (i.e. investment of SMEs increased
with the in the increase of size of the firm, age of the firm and the growth opportunity).
The adjusted R2 is around 30% in all models. Next, we investigate whether, in
addition to the crisis effect, investments of SMEs are dependent on internal finance
(cash flow) and external finance (bank finance). We run separate regressions on
these variables and present these results in equations (2) – (4) in table 5. The results
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Proceedings of Global Business and Finance Research Conference
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show that, cash flow has a significant negative relationship with investment, but the
effect of bank debt on investment is not statistically significant. However, hypothesis
1 is not supported as we do not see any significant negative effect of the financial
crisis on the investment of Dutch SMEs. The results argue that, the SMEs in
Netherlands were not hit by the financial crisis in-terms of investment, and portrays
opposite views of the effect of financial crisis on investment in relation to previous
studies (Dutchin et al., 2010; Vermoesen et al., 2013; Akbar et al., 2013).
Table 5: Effect of financial crisis on investment
Equation
Crisis
(1)
0.004
(1.08)
(2)
0.003
(0.86)
-0.063***
(-3.15)
(3)
(4)
0.004
(1.11)
0.003
(0.85)
Cash flow
-0.065***
(-3.14)
Bank debt
0.005
0.0001
(0.49)
(0.01)
Size
0.022***
0.016**
0.022***
0.016*
(2.72)
(2.01)
(2.71)
(1.92)
Age
0.007**
0.007**
0.007**
0.007**
(2.38)
(2.29)
(2.39)
(2.23)
Growth opportunity
0.225***
0.225***
0.224***
0.225***
(14.17)
(14.26)
(13.94)
(14.06)
Industry effect
Yes
Yes
Yes
Yes
Intercept
-0.082**
-0.053
-0.087**
-0.052
(-2.39)
(-1.50)
(-2.34)
(-1.33)
Observations
1643
1643
1641
1641
2
Adjusted R
0.302
0.306
0.301
0.305
In all regressions, the dependent variable is investment. t-statistics are in the
parenthesis. ***, **, and * indicate significance at the 1%, 5% and 10% levels,
respectively.
Table 6 reports the regression results to test the second hypothesis. Here we include
different financing sources and their interaction with the crisis dummy. In all
equations, individual effect of cash flows and bank debt show no significant
relationship with investment. However, the combined effect of crisis and cash flows
have significant negative effect on investment. Moreover, bank debt does not show
any significant relationship with investment. In equation (2), the marginal impact of
bank debt on investments is -0.008 during the pre-crisis period and 0.02 (= 0.008+0.028) during the crisis period. In the extended equation (3), the marginal
impact of bank debt on investments is -.011 during the pre-crisis period and 0.012 (=
-0.011+0.023) during the crisis period. The both equations (2 and 3) show that SMEs
use bank debt for investment during the financial crisis compared to the pre-crisis
period.
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Table 6: Joint effect of financial crisis and financing on investment
Equation
Crisis
(1)
0.012**
(2.22)
-0.019
(-0.69)
(2)
(3)
-0.011
(-0.96)
-0.001
(-0.07)
Cash flow
-0.023
(-0.84)
Bank debt
-0.008
-0.011
(-0.59)
(-0.74)
Crisis* Cash flow
-0.089**
-0.082**
(-2.40)
(-2.18)
Crisis* Bank debt
0.028
0.023
(1.41)
(1.16)
Size
0.017**
0.022***
0.017**
(2.17)
(2.73)
(2.08)
Age
0.007**
0.007**
0.007**
(2.33)
(2.40)
(2.28)
Growth opportunity
0.226***
0.224***
0.225***
(14.33)
(13.94)
(14.13)
Industry effect
Yes
Yes
Yes
Intercept
-0.064*
-0.080**
-0.056
(-1.79)
(-2.11)
(-1.42)
Observations
1643
1641
1641
2
Adjusted R
0.308
0.302
0.307
In all regressions, the dependent variable is investment. t-statistics are in the
parenthesis. ***, **, and * indicate significance at the 1%, 5% and 10% levels,
respectively.
To test the second hypothesis more precisely, we run regression based on the precrisis and crisis period sample on investment. Table 7 reports similar findings as table
6. The investment of SMEs during the financial crisis is mostly constrained by cash
flows. However, no significant result is evident on the use of bank debt during the
financial crisis but during the crisis shows positive relationship with investment.
We find that the impact of internal financing is higher than that of external finance,
irrespective of the financial environment. During the crisis period, SMEs do not use
cash flows for the investment purposes rather use bank finance. This comparative
result disapproves our expectation. This suggests that, SMEs’ investment were more
affected by the amount of internal finance. In order to keep their desired investment
during the crisis, SMEs use more bank debt.
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Table 7: Financing effect on investment: pre-crisis period compared to crisis period
Equation
(1)
(2)
(3)
(4)
(5)
(6)
Pre-crisis (2004-2007)
Crisis (2008-2012)
Cash flow
-0.013
-0.018
-0.115***
-0.113***
(-0.47)
(-0.64)
(-4.19)
(-3.99)
Bank debt
-0.006
-0.007
0.014
0.006
(-0.41)
(-0.50)
(1.03)
(0.44)
Size
0.026**
0.026**
0.024*
0.006
0.016
0.007
(2.07)
(2.11)
(1.88)
(0.64)
(1.56)
(0.73)
Age
0.008*
0.008*
0.008*
0.005
0.006
0.005
(1.93)
(1.86)
(1.82)
(1.25)
(1.4)
(1.28)
Growth opportunity
0.207***
0.207***
0.207***
0.248***
0.244***
0.247***
(8.86)
(8.8)
(8.81)
(11.98)
(11.3)
(11.73)
Industry effect
Yes
Yes
Yes
Yes
Yes
Yes
Intercept
-0.092
-0.091
-0.079
-0.010
-0.067
-0.018
(-1.62)
(-1.53)
(-1.27)
(-0.23)
(-1.45)
(-0.37)
Observations
828
826
826
815
815
815
2
Adjusted R
0.248
0.248
0.247
0.371
0.357
0.37
In all regressions, the dependent variable is investment. t-statistics are in the parenthesis.
***, **, and * indicate significance at the 1%, 5% and 10% levels, respectively.
6. Conclusions
Financial crisis does not only impact the financial sector, but can also extend to the
real economy. This study therefore investigates the impact of financing on
investments by using a unique dataset of private firms in the Netherlands. It covers a
long time-period (2004-2012) to enable reliable comparison of the conditions
prevailing during crisis and non-crisis years. Our results show that the recent financial
crisis has not affected the investment of SMEs adversely. SMEs tend to use
comparatively more bank debt than internal finance. Overall, the results suggest that
investments of SMEs are not vulnerable to variations in the supply of bank credit.
Rather investments of SMEs are constrained by the availability of the internal
finance. This may have long-term implications for the survival and growth of these
firms, which in turn might adversely affect the economy.
End Notesii
ii
http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performancereview/files/countries-sheets/2010-2011/netherlands_en.pdf
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Proceedings of Global Business and Finance Research Conference
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