Source of finance and small enterprise's productivity growth in Ghana

Abstract

Purpose

The purpose of this study is to investigate the effects of nature and a range of institutional sources of start-up finance on micro and small enterprises' (MSEs) productivity growth in Ghana.

Design/methodology/approach

Using a unique non-farm household enterprise survey data from Ghana, this paper estimated TFP or Solow residual as a proxy for MSEs' productivity growth as well as other for robustness checks.

Findings

After controlling for firm-level characteristics such as size, age, ownership type, etc. the study finds that debt finance was positively associated with productivity growth, while financing from donation or charity did not. Second, this paper found significant positive associations between a more formal financing source such as formal and semi-formal financing sources and MSE's productivity growth. This finding was robustly confirmed by manager's growth perception. Further, compared to internal finance, external financing sources were found to be positively associated with productivity growth – indicating complementarities among all external financing sources.

Research limitations/implications

Further research will be needed to validate these results, particularly using enterprise ongoing finance or working capital rather than start-up capital.

Originality/value

The study contributes to the finance literature by studying the impact of nature and institutional financing sources on MSEs' productivity growth in the African context.

Citation

Osei-Assibey, E. (2013), "Source of finance and small enterprise's productivity growth in Ghana", African Journal of Economic and Management Studies, Vol. 4 No. 3, pp. 372-386. https://doi.org/10.1108/AJEMS-03-2012-0017