Does the Financial Crisis Change the Effect of Financing on Investment? Evidence From Private SMEs
38 Pages Posted: 27 Jan 2020 Last revised: 3 Jun 2020
Date Written: September 30, 2019
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.
Keywords: Financing; Investment; Financial crisis; SMEs; Private firms
JEL Classification: G01; G21; G32; D22.
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