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Microenterprise financing preference: Testing POH within the context of Ghana's rural financial market


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  • Eric Osei-Assibey
  • Godfred A. Bokpin
  • Daniel K. Twerefou
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    Purpose – The purpose of this paper is to investigate the determinants of financing preference of micro and small enterprises (MSEs) whilst distinguishing a broader range of financing sources beyond what is typically the case within the corporate finance literature. Design/methodology/approach – Under the framework of ordinal logistic regression, the paper also tests whether there is evidence of hierarchical preference ordering as predicted by pecking order theory (POH) using field survey data for 2009. Findings – The authors relate that new enterprises are more likely to prefer low cost and less risky or less formal financing such as internal or bootstrap finances. However, as the enterprise gets established or matures, its capacity to seek formal financing increases, thereby becoming more likely to prefer or being in a higher category of formal financing. While the paper affirms the POH, it is argued that this order is a consequence of severe persistent constraints other than sheer preference. The findings further reveal that, microentrepreneur's and MSE's-specific level socio-economic characteristics such as owner's education or financial literacy status, households tangible assets, ownership structure, enterprise size, as well as sensitivity to high interest rates in the credit market, to be important determinants of either past (start-up), present or future financing preference. Originality/value – The main value of this paper is to analyse the determinants of financing preference of MSEs within the context of rural financial market (RFM) from a developing country perspective.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 39 (2012)
    Issue (Month): 1 (January)
    Pages: 84-105

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    Handle: RePEc:eme:jespps:v:39:y:2012:i:1:p:84-105

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK

    Related research

    Keywords: Developing countries; Financing; Financing preference; Ghana; Micro enterprises; Pecking order theory; Small enterprises;


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    2. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
    3. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
    4. Carling, Kenneth & Lundberg, Sofia, 2005. "Asymmetric information and distance: an empirical assessment of geographical credit rationing," Journal of Economics and Business, Elsevier, vol. 57(1), pages 39-59.
    5. Joshua Abor & Nicholas Biekpe, 2009. "How do we explain the capital structure of SMEs in sub-Saharan Africa?: Evidence from Ghana," Journal of Economic Studies, Emerald Group Publishing, vol. 36(1), pages 83-97, January.
    6. Wu, Feng & Guan, Zhengfei, 2008. "Farm Capital Structure Choice under Credit Constraint: Theory and Application," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6130, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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