The Internationalization of Swedish SMEs : how does internationalization affect individual firm’s capital and credit risk structure?

Abstract: In this master thesis we examine how the level of internationalization, i.e. a firm’s relative exposure to foreign sales, affects individual SMEs in Sweden. Since it is conducted using a data sample with Swedish SMEs its applicability in other countries may vary. The aspects concerned in which the internationalization affects the firm’s structure is limited to the areas of capital structure, credit risk and the factors affecting credit risk. Altman’s Z-score model is employed to approximate a firm’s credit risk and the debt ratio represents the firm’s capital structure. The purpose of the thesis is to increase the knowledge and provide insights on how internationalization affects SMEs in general and in Sweden in particular. Knowledge on how internationalization affects firms is scarce and by this thesis we have extended the known area of the topic and shed light on this relatively unexplored SME aspect. Our hope is that by highlighting differences (and similarities) in credit risk attributes of high and low internationalized firms SMEs this will improve their financial transparency and ease their attracting and access to external sources of capital. To examine the effects of internationalization on Swedish SMEs we have employed statistical techniques, most importantly regression analysis. Our study has not only implications for academics, but for all parts that has any interest in efficient credit scoring models and to understand credit risk characteristics and how internationalization affects SMEs. Banks, policy makers and credit rating agencies are constantly pursuing improvements in the efficiency and accuracy of quantifying credit risk by developing credit-scoring models. Banks because they want to minimize credit losses and maximize profitability and policy makers to secure a viable business environment for companies to nurture economic growth, employment, innovation and the country’s competitiveness. The SME segment has received extra attention lately due to the financing barriers they are facing. Our results are contradictory to some earlier research in the area and in line with other. This implies that the characteristics and relationship of SMEs credit risk and internationalization changes over time and/or differs between countries, perhaps even between regions within national borders. For example we arrived at the conclusion that our basic model indicates a positive relationship between internationalization and credit risk, in line with both Rugman (2009) and Caves (2007). Our analysis shows no significant difference in the firm’s capital structure depending on the internationalization, although younger companies tended to have a higher level of internationalization. This finding is contradictory to the research conducted by Burgman (2009) and the reports carried out by the European Commission whose report reaches the conclusion that older firms had a higher level of international exposure.