Financing preferences of micro and small enterprise owners in Tigray: does POH hold?

Abstract

Purpose

This paper aims to investigate the determinants of financing preferences of micro and small enterprises (MSEs) owners in Tigray regional state of Ethiopia in light of the Pecking Order Hypothesis (POH).

Design/methodology/approach

Structured questionnaires were used to collect data from 120 MSEs in six zonal towns of Tigray regional state. Logistic regression model was used to empirically test the literature‐driven hypotheses.

Findings

Key findings include that POH holds true for MSE owners in Tigray regional state as the educational level of owners decreases and there is less intrusion in the form of ownership. On the other hand, MSE owners with a higher degree of entrepreneurial skills are found to conform with the predictions of POH. Furthermore, factors such as ownership type, acquisition type, level of education of the owner/s and reason for business startups are found to be major determinants of MSE owners' financing preferences.

Research limitations/implications

There are of course elements that could determine MSE owners' financing preferences that require better understanding before a reliable prescriptive position on SME financing can be reached. At the same time, in this paper, data were collected from one regional state of Ethiopia that limits the generalization power of the conclusions reached. A need for more in‐depth qualitative investigation is further pointed out.

Originality/value

The research shows significance of ownership structure, entrepreneurability and MSE owners' education level in financing decisions of MSEs. The paper empirically tests POH in MSEs in Tigray regional state of Ethiopia.

Citation

Haileselasie Gebru, G. (2009), "Financing preferences of micro and small enterprise owners in Tigray: does POH hold?", Journal of Small Business and Enterprise Development, Vol. 16 No. 2, pp. 322-334. https://doi.org/10.1108/14626000910956083