Access To Finance And Financing Patterns Of Firms In Ghana

Access to external sources of financing for firms has been and continues to be an obstacle to the operations and growth of firms. Firms have used diverse means to finance their operations, especially internally generated funds. The purpose of the study was to investigate the determinants of the key external sources of financing working capital and new fixed investments by firms in Ghana. The main source of data for this study is the World Bank Enterprise Survey on Ghana; a firm level survey conducted in the year 2007. The Tobit estimation technique was used to investigate the determinants of the external sources of financing whiles analysis of variance was used to determine the variability in sources of finance according to firm size. The results of the study show that access to finance is perceived by firms as the second most serious obstacle to their operations. Secondly firms tend to rely more on internal sources of financing than external sources of financing. In the use of external sources of financing working capital, trade credit is more important than bank financing. However, firms finance a higher proportion of their new fixed investments from banks as compared to other sources of financing. The factors which influence the use of external sources of financing are firm size, audited financial statements, sector, educational level of the manager, ownership and location. The study recommends that firms, especially small firms, keep quality financial information on their operations. As firms put in place measures to improve on the needed financial information to external finance providers, financial intermediaries should also be encouraged to introduce more relationship lending products, if they are to meet the financing needs of Small and Medium Enterprises.