FIRM UNIQUE CHARATERISTICS AND ACCESS TO SHORT-TERM FINANCE AMONG ENTERPRISES IN GHANA

ABSTRACT
The relationship between Enterprise unique characteristics and access to short term finance from formal financial institutions was examined in this study. The secondary data set from the 2013 Enterprises Survey conducted by the World Bank on selected enterprises across the whole Ghana was employed for the study. The study adopted a qualitative analysis such as descriptive statistics, percentages and Analysis of Variance (ANOVA) to address the stated objectives. The outcomes suggested that enterprise unique features such as size, age and business location are important variables in explaining enterprises access to finance in Ghana. That is access to finance improves as firm size increase suggesting that micro and small enterprises can be said to be more constrained in accessing bank loans than their counterparts medium and large enterprises. Also, older enterprises were found to have moderate perception of access to finance as a major obstacle as compared to younger enterprises. Enterprises operating in Accra and other business centres were found be more constrained than other operation outside such locations. The study recommend that the concentration on supports for micro and small enterprises must continue but must expand alongside given loans to include technical advice on how to overcome the fear of accepting the responsibility of taking a loan. Also, major supporting policies from government agencies and NGOs must consider other unique characteristics such as age and business location of enterprises. For example, Younger enterprises can be given support irrespective of size since they are equally financially constrained.


CHAPTER ONE
INTRODUCTION
Background to the Study
A liquid capital or short-term loan is seen as the life line to the survival of enterprises irrespective of size and age. The special role of transactional and precautionary demand for money points to the special role of liquid capital in the growth and survival of any enterprise. Enterprise has many sources of short-term finance which may be internal and external. The internal sources can be strongly linked to the profitability of the enterprise or the personal savings of the owner in the case of sole proprietorship. The external source is a tall list which can also be categorized into formal and informal sources. The informal sources are easily accessible but can extend very limited amount of capital to enterprises. Because of the limited amount of finance that can be accessed from the informal money market, the attention has always been on the formal market and specifically bank loans (Sharpe, 1990). The formal money market can extend large loans but it usually comes with terms and conditions which most enterprises find complex and time consuming (Bigsten, Collier, Dercon, M. Fafchamps, Guthier, Gunning, Soderbom, Oduro, Oostendorp, Patillo&Zeufack (2000).

There are less ‘paper works’ in the informal money market because mostly the dealers of the informal money market operate within the same catchment area as their client and may have some form of personal relation with them. The tight network between the informal money market lenders and their client reduces information asymmetry and allow the lender to extend loans mostly without any form of collateral.

Banks and other formal financial institutions do not have that luxury of near perfect information about their client and have to contend with information asymmetry with high tendency of adverse selection. Sharpe (1990) attributed the cause of financial market malfunctioning to information asymmetry which compels financial institutions to adopt non-price strategies such as credit rationing in allocating credit in the imperfect market environment. The credit rationing theory, propounded by Stiglitz and Weiss (1981) asserts that information asymmetry is the main cause of financial market malfunctioning in developing countries. That is banks that advance loans to economic agents are not only interested in the interest they receive on loans, but also the risks of such loans. According to Abor and Quartey (2010), financial intermediaries that use the asset-based lending techniques look at the underlying assets of the firm (which are taken as collateral) as the primary source of repayment. But Stiglitz and Weiss (1981) argued that the problem of adverse selection and credit rationing can again occur even if banks require collateral for loans which still give way for loan defaulting.

To manage information asymmetry and hence reduce adverse selection to ensure high repayment rate, banks demand some guarantees and sureties from their clients before extending loans to them. In practice, the size of the loan has direct relationship with the value of collateral required for the loan. In this case, both small and large enterprises can have issues with provision of collateral to access loans. That is, since large enterprises usually go for large corporate loan they may as well face the issues of providing the corresponding collateral despite the assets endowments. Thus the issue of whether access to formal finance is a direct function of size or not becomes an empirical research issue which demand attention.

Statement of the Problem
The Ghana constrain analyses of 2011 suggested that credit is a binding constraint on enterprises in the country (Ghana Constrain Analyses, 2011). A survey by the Association of Ghana Industries (AGI) for the second quarter of 2011 also indicated that lack of adequate access to credit topped the factors hampering the growth of small businesses in Ghana (Nkuah, Tanyeh&Gaeten, 2013). Despite the fact that access to finance is proven to be a major constraint on enterprises, very little is known about the actual implication on the respective size groups in the country. That is who bears the greatest grudge of the financial constraints and how does the size of a firm affect its ability to access fund from banks. Earlier studies in the domestic scenes have concentrated on the Small and Medium scale Enterprises (SMEs) since it was thought the large enterprises have no issues with access to finance (Bigsten et al, 2013). The current business environment presents the need to look into the access to finance since the ongoing power crisis has eroded the internally generated funds of most enterprises irrespective of size (Braimah &Amponsah, 2012; Doe &Asamoah, 2014).

Therefore a gap is created in the light of the relationship that exists between some unique firm characteristics and its ability to access finance across industries and business zones in Ghana.

Significance of the Study
The study explores the influence of firm unique characteristics on its access to finance of enterprises in Ghana. The outcome shall aid in policy decision on financial support to enterprises. Also, it shallaid stakeholders like the financial institutions, government agencies and the non-government organizations (NGOs) to identify which business group to concentrate their support program as well as providing support services on cost containment to reduce demand for funds.

Objectives of the Study
The general objective of the study is to determine the influence of firms’ unique characteristicsonaccess to short-term finance among enterprises in Ghana. Specifically the study sought to:

determine the preparedness of enterprises to access bank loans and overdrafts.

examine the influence of firm sizeon its access to finance.

examine the influence of firm ageon its access to finance.

examine theinfluence of firm locationon its access to finance.

Research Questions
To address the main problem, the following sub-problems have been crafted to guide the study:

What is the level of preparedness enterprises in Ghana to access bank loans and overdrafts?

What is the influence of firm size on its access to finance?

What is the influence of firm age on its access to finance?

What is the influence of firm location on its access to finance?

Delimitation of the study
The scope of the study is limited to access to short-term finance among enterprises in Ghana as were sampled for the 2013 World Bank Enterprise Survey (ES). The firms’ unique characteristics were limited to firm size, firm age and location. These three unique characteristics were considered appropriate since they capture the most important aspect of a firm such as risk, reputation, experience and financial accessibility. Hence the outcome of the results shall be reliable enough for policy recommendations.

The use of secondary data also has its own limitation since the researcher has little control over what information was retrieved and their relevance. However, the World Bank Group that gathered the enterprise survey dataset has the reputation and the capabilities to retrieve the right kind of data on enterprises using standardized questionnaires. Thus the analyses done on the enterprises dataset was consistent enough for policy actions.

Organization of the Study
The study is organized into five main chapters. The first chapter covered the introduction, the statement of the problem, significance for the study, the objectives of the study, the delimitation of the study and organization of the study. The second chapter entailed the review of theoretical framework and empirical literatures which are relevant to the objectives and approaches to the study. The third chapter covered the methodologies adopted to address the research questions and hence to achieve the stated objectives of the study. The fourth chapter presented the results of the analysis which is followed by the discussion of the main findings. The last chapter, the fifth chaptercovered the summary of the study and the key findings of the study, the conclusions and recommendations of the study and suggestions for future research.

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Item Type: Ghanaian Postgraduate Material  |  Attribute: 67 pages  |  Chapters: 1-5
Format: MS Word  |  Price: GH110 ($20)  |  Delivery: Within 30Mins.
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