This paper examines the real effects of the financial crisis on private firms in the Netherlands. We find that investments of small and medium-sized private enterprises declined significantly both during and after the financial crisis. We also find that investments become less dependent on internal finance than on external finance during the crisis period. However, the impacts of the two financing sources on firm investment during the postcrisis period do not differ. The findings of the study suggest that borrowing from banks remained critical in determining the investments of private SMEs during the financial crisis of 2008–۲۰۰۹٫

Introduction

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. This attention is mainly driven by the concern that a financial crisis disproportionately affects small and medium-sized enterprises (SMEs) which are widely regarded as a significant source of entrepreneurship, innovation, employment and economic growth (Ayyagari, Beck, & Demirgüç-Kunt, 2007; Kirchhoff, Newbert, & Hasan, 2007; Lee, Park, & Yoon, 2010). During the crisis, 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, ۲۰۱۱; Michaelas, Chittenden, & Poutziouris, 1999). In this paper, we examine how the financial crisis has affected the real investments of private firms. We make three new contributions to the literature. First, we analyze the impact of two leading financing sources of SMEs: bank debt and internal finance. Private SMEs also have fewer alternative financing sources than listed firms (Becchetti, Castelli, & Hasan, 2010).