The Financing and the Investment Dynamics of French SMEs

Despite a decrease of the profitability of some firms (especially industrial firms), French SMEs have maintained a relatively high investment rate over the last fifteen years leading to growing indebtedness. This was kept under control thanks to the decrease of the cost of debt whereas along with a relatively healthy financial position maintained through retained cash flows that allows a decrease in leverage. Nevertheless, despite this apparent dynamism, the SMEs investment is rather lacklustre, suggesting a lack of successful innovative investment projects, even before the crisis. When considering the nature of the investment, we note that the dynamism of investment could primarily reflect an increase in building, mainly reflecting a price effect. There are also indications that investment is been more passive than offensive and insufficiently productive, at least in the manufacturing sector. The increase of the both components of their balance sheet reveals the vulnerability of French firms and questions the sustainability of the recent developments.