Financing of Growth Companies within the Construction Industry: Are Small Players Gaining the Necessary Funds to Expand?

Abstract

Background: Earlier empirical studies have shown that small companies suffer from a financial gap. There are different opinions about whether it is caused by a lack in demand or supply of external debt capital.

Purpose: This thesis examines if accounting information can identify a financial gap, if the debt-to-equity ratio as measure for this is useful and if the financial gap is caused by a lack in demand for external debt financing.

Delimitations: Only limited liability companies within the construction industry that historically has shown growth is examined.

Method: Annual reports from the companies gathered have been examined, using the debt-to-equity ratio as measure for finding those who experience a financial gap. A survey designed to answer if a financial gap exists because of a lack in demand for external debt capital is sent to a sample of the companies gathered. Statistical tests are performed and the theoretical framework is used to analyse the results.

Results and Conclusions: It is possible to identify a financial gap within small companies in the construction industry through their reported accounting information. Debt-to-equity ratio can together with other measures, be considered useful information for creditors’ when looking for investment opportunities. A financial gap primarily exists because of a lack in demand for external debt financing.