Blogg | 11 January 2012

Research om SMEs på NGM Equity.

En liten research kring SMEs på NGM Equity och företagens kapitalstruktur. Något säger mig att det inte finns någon anledning till någon investering i dessa företag långsiktigt och att företagen är väldigt beroende av slumpen, eller marknadssituationen.

Small and medium sized enterprises (SMEs) stand for 99.8 percent of businesses in Europe
and are therefore a vital part of every country’s economic growth. The maintenance of an
optimal capital structure is considered as an area where decision makers can influence the
company as company value and risk depends, at least in part, on its capital structure. Of
particular interest when studying capital structures among SMEs are high growth firms which
are assumed to be more capital intense due to the need to finance their extraordinary growth.
There seems to be a knowledge gap regarding research on the capital structure employed by
firms listed in Sweden and there is therefore an opening for a study of this kind.

Theories discussed in this paper are the pecking order theory and trade off theory which have
been supplemented with information asymmetry theory and agency theory to build up a solid
theoretical framework. These theories are also commonly used when capital structure issues
are discussed. Pecking order theory describes how firms raise capital according to a ladder of
preferences where internally generated funds are preferred to external funds and where debt is
preferred to equity. Looking at the empirics on the pecking order there appear to be
contradictions in the literature where some previous research findings suggest a reversion of
the pecking order with regard to external funds, i.e. that external equity is preferred to
external debt.

Three factors that are extensively mentioned in the seminal work are financial flexibility,
ownership control and the tax advantage of debt interest deductibility. These seem to have an
influence on capital structure decisions. Therefore we also look at the relative importance of
these factors. The research question of this study is thus: “What influences the capital
structure and the pecking order among high growth, listed SMEs in Sweden?”. The practical
implication of this study is to increase knowledge on what factors companies value with
regard to capital structure decisions.

A quantitative case study of the total population of high growth SMEs listed on the NGM
Equity in Sweden was conducted. A deductive approach was used. A web based questionnaire
was sent out to all 26 companies listed on NGM Equity during April 2010.

The result is presented in an aggregated form using descriptive statistics and shows no
evidence for a specific pecking order with regard to external funds. This suggests that the
theory therefore needs revision. Equity and debt appear to be close to equally preferred and
the overall finding suggests that there is a lack of financial strategy among SMEs listed on
NGM Equity. Financial flexibility appears to have the most impact on influencing the
financial structure followed by ownership control. The advantage of debt interest deductibility
on tax appears to be of less importance.