Abstract:
The primary objective of this study was to examine how and to what extent
entrepreneurial orientation, firm internal resources and capital structure decisions
affect growth of small enterprises, following the resource- based view on
determinants of growth and static trade-off theory of capital structure as
theoretical frameworks. Regardless of the number of earlier study, there is no
consensus among scholars on determinants of growth due to the existence of
different theories and metrics of growth. Moreover, as the earlier studies were
undertaken in developed countries, their research findings could not permit
generalization on the effect of the explanatory variables on growth in less
developed countries like Ethiopia. Therefore, this research tried to fill the gap in
the existing body of knowledge on determinants of growth by contextualizing the
association of growth with firm specific factors and EO from the Ethiopian
context, more specifically from the context of Tigray Regional State. Besides,
extra variables that were either not considered or might have been tested
separately in earlier studies in Ethiopia were integrated into the regression model.
In this mixed explanatory cross-sectional research, systematic random sampling
techniques and structure questionnaire were applied to collect primary data from
333 small enterprises operating in five urban towns of Tigray region. Dependent
variable of the study was growth of small enterprises, defined as logarithm of
change in number of employees at the time of establishment and time of survey.
The explanatory variables comprise of entrepreneurial orientation with three
dimensions, tangible and intangible resources under the control of a given
enterprises, capital structure decisions, external factors such as marketing related
problems cost and accessibility of infrastructure, government policies and
bureaucracy, business development services were also included in the regression
model. Descriptive statistics, statistical difference tests, multiple regression
analysis and Propensity Score Matching were applied for the purpose of data
analysis with the help of Stata version 12 software. Majority of the small
enterprises demonstrated moderate degree of entrepreneurial orientation and
location nearer to major customers, entrepreneurial orientation, strong financial
position, access to credit and leverage have statistically significant positive effect
on growth of small enterprises which support the resource based view and static
trade-off theory of capital structure as well as the perceived hypothesis. On the
other hand, consistent to the hypothesis, age and size of small enterprises showed
negative significant effect on growth, that supports Jovanovich’s learning model
but against the Girbat’s law of proportionate effect. Moreover, the relationship
between education and growth was found to be non-linear or volatile-growth of
SEs tend to declined until certain level, reached a minimum level after which
SEs with more educated owners tend to grow faster. This implies that unless
owners’ years of education reach a very high level of schooling, a given increase
in years of schooling could not necessarily result into higher growth rate. Based
on the findings, the researcher suggests (i) in order to solve financial constraints
of SEs, stakeholder need introduction of National Credit Guarantee Fund,
Promotion of non-bank financial services, introduce Mandatory Minimum Bank
Loan to small enterprises, establish specialized banking system that specifically
support the small enterprise sector, (ii) provide working premises such as shades
at concessional cost, (iii) facilitate establishment of small enterprise commercial
centers, (iv) strengthen the clustering practices,(v) facilitate provision of adequate
infrastructure at reasonable price, (vi) as TVET completed individuals outperform
in growth rate, educational institutions in Ethiopia need to incorporate
competence based training system and entrepreneurship into their syllabus by
strengthening the industry university linkages
