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Determinants of debt ratio levels among small-scale manufacturing enterprises in Ethiopia: Do government policies matter?

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  • Melesse, Wondemhunegn Ezezew

Abstract

Businesses, consumers, and individual investors rely on a host of debt instruments when their internal resources are insufficient. This paper explores the determinants of debt financing choices among small-scale manufacturing enterprises in Ethiopia—with special focus on the role of government policies. The study exploits survey data gathered from 1321 enterprises in the Amhara region of Ethiopia and employs conditional mixed process (CMP) estimation technique to isolate the key drivers of firm debt levels. The major econometric findings confirm that enterprises that had some debt mix in their startup capital are more likely to be in higher debt categories than those enterprises that kick start exclusively with their own internal resources. In addition, the results also reveal that self-reported profitability, firm age, ownership structure, access to business development services, and receipt of bureaucratic support during enterprise formation process have strong effects on the degree of firms’ indebtedness. However, firm size, gender, and owner-manager’s education have no discernible correlation with reported debt levels in the sampled firms.

Suggested Citation

  • Melesse, Wondemhunegn Ezezew, 2020. "Determinants of debt ratio levels among small-scale manufacturing enterprises in Ethiopia: Do government policies matter?," MPRA Paper 103240, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103240
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    More about this item

    Keywords

    debt financing; small-scale enterprises; ordered probit; conditional mixed process; Ethiopia;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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