The Effect of Access to Finance on Firm Performance: Evidence from Ethiopia’s Firms
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Date
2021-10
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A.A.U
Abstract
This paper aims to assess the effect of access to finance on firm performance measured by employment growth in Ethiopia. The study uses a firm-level data set from World Bank Enterprise surveys of Ethiopia in 2011 and 2015. The study used both subjective and objective measures of access to finance. The subjective measure is based on firm‘s ranking of access to finance constraint on their firm. The objective measure was obtained through different questions raised about firm‘s access to credit and loans. The study adopted both descriptive and econometric approaches. To address the potential en doginity bias between firm performance and access to finance, the study used instrumental variable (GMM) model. The results show that the constraint on access to finance has a significant negative effect on employment growth, and access to finance improves firm performance. The study also found that access to finance is affected by firm characteristics. Firms that are larger and older in age tend to have greater financial inclusion. These results show that the performance of firms can be greatly enhanced if firms had better access to finance. The study also recommends that policies and programs to improve access to finance for small and young business
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Keywords
Firm capability, access to finance, firm performance, financial constraints; financial inclusion, employment growth Ethiopia Firm age, firm size