Abstract
The paper examines the real effects of the financial crisis for private firms. Analyzing a novel dataset from the Netherlands and controlling for multiple key factors, we find that investments of small and medium-sized private enterprises reduced significantly during and after the financial crisis. We find that both internal and external financing sources had a significant positive relationship with investment during the pre-crisis and post-crisis periods. But, during the crisis period, internal finance became significantly less influential on investment compared to external finance. The findings of the study suggest that borrowing from banks played a more prominent role in determining the investments of SMEs during the financial crisis of 2008-2009.
Highlights
The financial crisis of 2008, regarded by many as the most serious crisis since the Great Depression of the 1930s, has brought financing and investment decisions of small businesses into sharp focus
We focus on the investment behavior of these firms
We examine whether private small and medium-sized enterprises (SMEs) have reduced the amount of investment in fixed assets as a result of the financial crisis
Summary
The financial crisis of 2008, regarded by many as the most serious crisis since the Great Depression of the 1930s, has brought financing and investment decisions of small businesses into sharp focus. Private SMEs face additional restrictions and higher costs in gaining access to finance relative to large, listed firms (de la Torre, Martínez Pería, & Schmukler, 2010). These difficulties arise from the distinct characteristics of private firms; for example, difficulty in accessing the public capital market, shorter track record, greater information asymmetry, higher failure rate, fewer opportunities available to owners-managers for wealth diversification, and typically lower availability of collateral (Beck, Demirguc-Kunt, & Maksimovic, 2008; Danielson & Scott, 2007; López-Gracia & MestreBarberá, 2011; Michaelas, Chittenden, & Poutziouris, 1999). Private SMEs have fewer alternative financing sources than listed firms
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