The Real Effects of the Financial Crisis on the Small- and Medium-Sized Enterprises

Small- and medium-sized enterprises (SMEs) are a significant source of entrepreneurship, employment and growth of an economy. Policymakers and practitioners were concerned that the decline in bank financing during the recent economic crisis had a damaging impact on the investments of SMEs. This paper therefore examines how the investment behavior of these firms was really affected by the crisis. Analyzing a large sample of private firms from the Netherlands for the period 2004-2012, we find that SME investments suffered a significant decline during the financial crisis. While both internal and external financing sources exhibited significant positive relationships with investments during the pre-crisis as well as the crisis periods, no significant differential impact was observed. The finding provides some relief to those who were worried by the contraction in bank lending.