Capital structure and financing of SMEs : empirical evidence from Ghana and South Africa

Abstract

This thesis is made of stand-alone essays on the capital structure and financing of Small and Medium Enterprises (SMEs) in Ghana and South Africa.Chapter Two reviews issues on SME development in Ghana and South Africa.Chapter Three compares the capital structures of large, quoted firms and SMEs in Ghana.The results show that quoted firms exhibit higher debt ratios than those of SMEs.The results suggest that age, size, asset structure, and profitability of the firm affect the capital structures of quoted firms and SMEs.For the SME, it is evident that level of education and gender of the entrepreneur, industry, and location of the firm are also important in explaining their capital structure.Chapter Four examines the determinants of bank financing of SMEs in Ghana.The results reveal that bank financing accounts for less than a quarter of SMEs' debt financing, with short-term bank credit representing the greater proportion of bank finance.The results show that age, size, asset tangibility, and growth of the firm have positive associations with long-term bank debt, while profitability is negatively related to long-term bank debt.The short-term debt indicates a positive relationship with size, but negative relationships with profitability, and growth.Chapter Four also investigates the awareness and use of various financing schemes available to the Ghanaian SME sector.The results reveal low awareness and usage levels of these financing initiatives.Chapter Five explores the determinants of Ghanaian small and medium sized non-traditional exporters' (NTEs) choice of formal/informal finance.The results show that NTEs depend on formal financing sources with bank finance representing the greater percentage of NTEs' financing.The results suggest that, newer firms depend more on formal finance and less on informal finance.The results show positive relationships between formal finance and size, and growth of the firm.Chapter Six assesses how corporate governance affects the performance of SMEs in Ghana and what the implications are for financing opportunities.The results reveal that better corporate governance structures lead to better performance of SMEs.The paper concludes that the adoption of good corporate governance structures could lead to better management decisions and enable SMEs to attract financing resources.Chapter Seven examines the relationship between agency factors and the capital structure of quoted SMEs in South Africa.The results indicate that firms with one institutional blockholder are able to monitor the opportunistic behaviour of management more effectively than those with more than one institutional blockholders.

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