Do the investment determinants of new SMEs differ from those of existing SMEs? Empirical evidence using panel data

Abstract

In this study we investigate whether the investment determinants of new SMEs differ from those of existing SMEs. To do so, we use two samples of Portuguese SMEs: 495 new SMEs and 1350 existing SMEs, and to estimate the results we use the two-step estimation method. The empirical evidence allows us to conclude that cash flow, age, growth opportunities and GNP are of greater importance for stimulating investment in new SMEs than they are in existing SMEs; sales are of greater importance in stimulating investment in existing SMEs than they are in new SMEs; and debt and interest rate are of greater importance in reducing investment in new SMEs than they are in existing SMEs. Also, the persistence of investment over time is greater in new SMEs than it is in existing SMEs. These findings suggest that problems of information asymmetry between SME owners/managers and creditors are particularly important in the context of new SME activity. As guidelines for economic policy, we suggest adding effective support through the creation of beneficial lines of credit designed specifically to support new S ME activity.

Asymmetric Information and Agency Cost of Financial Leverage and Corporate Investments: Evidence from Emerging South-East European Countries

“…Opler and Titman (1994) show that leverage has a positive effect on sales growth for large, highly leveraged firms that are not in distressed industries, as are the SEE companies. As sales growth may provide an incentive for firms to increase their level of investment and so expand their market share (Serrasqueiro, Mendes, Nunes, & Armada, 2012).…”