Mid Sweden University

This study examines the impact of financial structures on the growth of micro firms in Sweden. The objective of

this paper is to explore whether firms’ growth can be associated with patterns of financial acquisition and

whether these patterns influence firms’ growth differently when the source is either internal or external. Based

on agency cost theory, hypotheses were formulated and tested with panel data consisting of 12 101 micro firms,

using 84 707 observations for the period 2006–2007. The data were analysed using the seemingly unrelated

regression (SUR) model. The empirical results reveal that internal financial sources – retained profit –

significantly influence firm growth. Similarly, short-term debt and growth are positively related. However, firm

growth is generally more sensitive to retained profit than short-term debt. Interestingly, long-term debt generally

has no effect on growth. The findings also indicate that size, age, and industry affiliation influence firm growth. Finally, agency cost theory is relevant in explaining the relationship between financing pattern and growth.