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Capital Structure Decisions: A case study on high growth SMEs listed on NGM Equity in Sweden
Umeå University, Faculty of Social Sciences, Umeå School of Business.
Umeå University, Faculty of Social Sciences, Umeå School of Business.
2010 (English)Independent thesis Advanced level (degree of Master (One Year)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

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.


We believe that this study has contributed to knowledge about capital structure decisions and is good groundwork for future research. Future researchers are suggested to increase the studied population and separate companies according to industry and size and in order to get statistically significant results applicable on other similar groups in other countries.

Place, publisher, year, edition, pages
2010. , 80 p.
National Category
Business Administration
URN: urn:nbn:se:umu:diva-38391OAI: diva2:376600
Social and Behavioural Science, Law
Available from: 2010-12-15 Created: 2010-12-11 Last updated: 2010-12-15Bibliographically approved

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