An empirical analysis of factors affecting financing accessibility for small and medium - sized enterprises

Abstract

This thesis investigates the challenges small and medium-sized enterprises (SMEs) face in accessing finance and proposes potential policy solutions to improve access. The research comprises three empirical projects, utilizing various econometric techniques and data sources to offer a holistic understanding of SME financing. The first project examines the effects of external audits, international standard certification, and government contracts on SMEs' financial access. The findings reveal that external audits and international standard certification positively influence SME financing, while procurement of government contracts has a negative impact on financial access. The second project explores the impact of adopting International Financial Reporting Standards for SMEs (IFRS for SMEs) on their financing. The results demonstrate that IFRS for SMEs adoption significantly enhances financial access. The third project investigates the consequences of interest rate caps (IRC) on SME financing, emphasizing their unintended repercussions. The study indicates that IRC can adversely affect SME financing, particularly for smaller enterprises, due to the policy's restrictive nature. The thesis concludes that factors such as institutional quality, financial development, corruption perception, and collateral requirements pose considerable challenges to SME financing. It proposes practical policy solutions, including enhancing institutional quality, fostering financial development, reducing corruption levels, and re-evaluating the reliance on collateral requirements. Policymakers should also consider alternative approaches like credit guarantees, loan subsidies, and risk-sharing mechanisms to encourage SME financing. In conclusion, this thesis provides valuable policy recommendations to promote SME financing in developing countries. The findings can inform policymakers, industry practitioners, and academics about potential solutions to SMEs' challenges. Future research could examine the influence of political instability, cultural factors, and technological advancements on SME financing and assess alternative policies' effectiveness in various contexts. The research methodology utilized in this thesis incorporates diverse econometric techniques and data sources, ensuring robust and comprehensive results.