ACCESS TO FINANCE AND FINANCING PATTERNS OF FIRMS IN GHANA
Date
2011-06-22
Authors
AMAKYE, KWAKU
Journal Title
Journal ISSN
Volume Title
Publisher
University of Ghana, Legon
Abstract
Access to external sources of financing for firms has been and continues to be an
obstacle to the operations and growth of firms. Firms have used diverse means to
finance their operations, especially internally generated funds. The purpose of the
study was to investigate the determinants of the key external sources of financing
working capital and new fixed investments by firms in Ghana.
The main source of data for this study is the World Bank Enterprise Survey on Ghana;
a firm level survey conducted in the year 2007. The Tobit estimation technique was
used to investigate the determinants of the external sources of financing whiles
analysis of variance was used to determine the variability in sources of finance
according to firm size.
The results of the study show that access to finance is perceived by firms as the
second most serious obstacle to their operations. Secondly firms tend to rely more on
internal sources of financing than external sources of financing. In the use of external
sources of financing working capital, trade credit is more important than bank
financing. However, firms finance a higher proportion of their new fixed investments
from banks as compared to other sources of financing. The factors which influence
the use of external sources of financing are firm size, audited financial statements,
sector, educational level of the manager, ownership and location.
The study recommends that firms, especially small firms, keep quality financial
information on their operations. As firms put in place measures to improve on the
needed financial information to external finance providers, financial intermediaries
should also be encouraged to introduce more relationship lending products, if they are
to meet the financing needs of Small and Medium Enterprises.