The Leverage of Access to Finance on the Performance of Firms: A Study Conducted in Ethiopia

Abstract

This study conducts an empirical investigation of the effects of access to finance on the performance of firms in Ethiopia.  The objective of this study is to indicate the leverage of access to finance on performance of firms in Ethiopia. The study used regression analysis between the access to finance indicators and firm performance.This study finds that access to finance measured by the share of working capital granted and the percentage of bank loan becomes significant and robust with all firm performance indicators in the study. The contribution of bank loan found to be very strong to sales growth and profitability.The availability of a credit or overdraft line facility boosts up sales, profitability, employment and investment growth. In the business environment where there is narrow financial system and financial resources constrained, an exposure to finance makes difference on firms’ growth and performance in Ethiopia.

Keywords: Access to finance, Firm performance, Profitability, Ethiopia.