Investments, financial constraints in non-quoted Swedish Firms

Using panel data from 10 573 non-quoted Swedish SMEs over the period 2006-2014, we examine how dependent investments made by Swedish SMEs are of internally generated cash-flows. To control for investment opportunities, we use an accelerator model. Applying a static accelerator model our result shows that, investment levels are in fact affected by the availability of internal funding. It takes between 2-2.5 years for the capital stock to adjust to shocks in demand. As the speed of the adjustment rate increases firms’ investment levels become more dependent on internal funding, indicating high adjustment costs. Finally, as firms become larger their investment level becomes less dependent on internal funding, indicating that it may be easier for larger firms to attract external funding.