Financing Structure, Micro and Small Enterprises’ Performance, and Woman Entrepreneurship in Indonesia

Access to finance has been found crucial in influencing firms’ real activities and economic performance.This paper investigates the relationship between the financing structure and firm performance by explor-ing a unique panel dataset of 59,968 Micro and Small Enterprises (MSEs) operating in the manufacturingsector in Indonesia over the 2010-2015 period. We collected a rich set of information about source ofloans to assess the firm performance using yearly total factor productivity (TFP) and labor productivityof each firm. We then examined whether more financing options available to women entrepreneurshipimproves firm performance. Our results show that financial factors are highly decisive to firms’ TFPand labor productivity. The MSEs which have access to external formal financing directly improvesproductivity at the firm level. Moreover, the study finds a significant underperformance of firms ownedby women entrepreneurs compared to those owned by men entrepreneurs. Nevertheless, we found thatwomen entrepreneurs who have access to formal financing improve their firm’s performance. The effectsof finance on productivity are also linked to the firm’s ownership, education, size and age. Our resultsare robust as demonstrated through the use of different approaches. These results provide support forpolicymakers to alleviate credit constraints to enhance productivity of micro and small enterprises andespecially woman entrepreneurship in Indonesia.