Control aversion and the search for external financing in Swedish SMEs

The discussion on growth (see Storey, 1997) and control aversion (Cressy, 1 995; Chittenden et al., 1996; Cressy and Olofsson, 1996) in small and mediu m sized firms has been attracting an increasing amount of attention. Our pu rpose in this article is to identify under what circumstances small and med ium sized firms are prepared to accept outside control in the business firm in order to grow. In the article it is argued that technology development, financial strength, size and perceived need to grow, change firms attitude s towards external financiers. The change in attitude towards more openness eventually leads to an actual behaviour where the principals choose to app ly for external finance in the form of bank loans. A linear structural equa tion modelling program, LISREL, is used to analyse a sample of 281 Swedish firms. The firms all have less than 200 employees, and the sample includes both manufacturing and service firms.