Determinants of Micro and Small Scale Enterprises’ financing preference in line with POH and Access to Credit: Empirical Evidence from Entrepreneurs in Ethiopia, Benishangul-Gumuz Regional State

The purpose of this study was to examine factors that determine micro and small scale enterprises’ financing preference in line with pecking order theory and access to credit in Benishangul-Gumuz Regional State of Ethiopia. The study used primary data collected using cross sectional survey questionnaire. The sample of this study was 296 enterprises selected using proportional stratified random sampling technique. The data was analyzed using descriptive and logistic regression analysis. Accordingly, the results of logistic regression revealed that business experience, collateral, gender, motivation and enterprises’ sectoral engagement affect financing preference of enterprises in line with pecking order hypothesis. To investigate access to credit determinants, only enterprises that need to raise capital through credit were considered. As a result, the logistic regression output revealed that business experience, size, sectoral engagement, collateral, interest rate, loan repayment period, financial reporting, preparation of business plan, location and educational background of entrepreneurs affect access to credit of enterprises. However, more evidence is needed on enterprises’ financing preference and access to credit determinants before any generalization of the results can be made for the fact that the empirical tests were conducted only on 296 entrepreneurs since 2019. Therefore, the findings are valid and practicable only for the entrepreneurs under the study and the results cannot be assumed to extend beyond this group of entrepreneurs to different study periods. Despite its limitations, the study makes an original contribution to the literature of small business finance by investigating determinants of micro and small scale enterprises’ financing preference in line with pecking order hypothesis and access to credit in Benishangul Gumuz regional state of Ethiopia as a developing country.

Determinants of Micro and Small Scale Enterprises’ financing preference in line with POH and Access to Credit: Empirical Evidence from Entrepreneurs in Ethiopia, Benishangul-Gumuz Regional State

Purpose: The purpose of this study was to examine factors that determine micro and small scale enterprises’ financing preference in line with pecking order theory and access to credit in Benishangul-Gumuz Regional State of Ethiopia.Design / Methodology / Approach: The study used primary data collected using cross sectional survey questionnaire followed by mixed research approach. The sample of this study was 296 enterprises selected using proportional stratified random sampling technique. The data was analyzed using descriptive and logistic regression analysis.Findings: The results of logistic regression analysis revealed that business experience, collateral, gender, motivation and enterprises’ sectoral engagement affect financing preference of enterprises in line with pecking order hypothesis. On the second step, only enterprises that need to raise capital through credit were considered to investigate access to credit determinants. Accordingly, the logistic regression result revealed that business experience, size, sectoral engagement, collateral, interest rate, loan repayment period, financial reporting, preparation of business plan, location and educational background of entrepreneurs affect access to credit of enterprises. Research limitations/Implications: More evidence is needed on enterprises’ financing preference and access to credit determinants before any generalization of the results can be made. In addition, the empirical tests were conducted only on 296 entrepreneurs since 2019. Therefore, the results of the study cannot be assumed to extend beyond this group of entrepreneurs to different study periods.Originality/value: This paper adds value to the literature on the determinants of micro and small scale enterprises’ financing preference in line with pecking order hypothesis and access to credit.

We Have Got Credit!

This paper investigates whether there is a gender bias in granting credit for businesses from Eastern Sub-Saharan Africa. It is first necessary to determine whether firms are credit-constrained. In order to identify the status of the firms with respect to credit, two recently introduced methods that can identify the credit-constrained status of firms are used. The paper uses World Bank’s Enterprise Survey Program data set from 2013 to investigate this question. The empirical results obtained, after controlling for a large number of firm-level characteristics and using country-level dummies, reveal that female-owned firms appear to have more access to credit than their male counterparts. The paper also shows that the female-owned firms in the region finance their capital according to the Pecking Order Hypothesis.

Dividend Policies and Business Groups: the Case of Croatia

There are two competing hypothesizes on whether firms that are part of a business group should pay higher or lower dividends. Under one hypothesis, that can have different theoretical assumptions, firms that are a part of a business group should pay higher dividends. In contrast, if the pecking order hypothesis holds, firms that operate within a business group should pay lower dividends. The purpose of this paper is to examine the effect of group affiliation of Croatian firms, which are listed on the Zagreb Stock Exchange, on their propensity to pay dividends. Two panel data models were used in line with recent literature and the results of the study show some evidence that the pecking order theory was followed by Croatian firms. From this result the conclusion is that Croatian firms are more likely to pay dividends if they are not part of a business group.

A Robustness Check on Debt and the Pecking Order Hypothesis with Asymmetric Information

Daniel and Titman (1995) examined the incentives of firms to signal their values prior to making a new equity offering. By analyzing this issue within a simple framework that encompasses a number of models in the literature, they were able to judge the relative efficiency of various signals that have been proposed. Although their analyses offer valuable insights, the robustness of their model has yet to be checked. This paper examines the parametric assumptions of their model in the section on debt and the pecking order hypothesis. We first generalize the assumptions in the example by Daniel and Titman (1995) to allow for continuous-state of nature. We then derive the resulting closed-form solution for the equilibrium payoffs to the original shareholders of both types firms under different beliefs. Although we only examine the robustness of a particular setting, our methodology can be applied to other settings.