Impact of internal finance on firm growth: a case sudy on South African SMEs
Tshabalala, Francinah Bongi
It is known that entrepreneurship has great advantages on the economy as a whole. In South Africa, SMEs constitute majority of business in the formal sector. Yet, many firms struggle and some diminish because of finance. Many do not have access to external finance as such this study proposed internal finance to be an avenue that can be explored. This paper argues that access to internal finance leads to firm growth. Thus the following research question is proposed: To what extent does internal finance impact the growth of SME in South Africa and how? A second question is proposed as there are different types of internal finance: What component of internal finance is available for South African SMEs and to what extent does it affect their growth? Moreover, the other factors of firm growth and, further, their impact on internal finance were focused in order to fully understand the relationship between internal finance and firm growth. The study employed a sample of SMEs registered on the AltX section of the JSE. A panel data set was used in combination with Fixed Effects Method and Random Effects Model to run simple and multiple linear regression analysis to obtain results. A significant but ambiguous relationship between internal finance and firm growth was found. The study further recognized a negative relationship between internal finance and the two types of internal finance: retained earnings and fixed assets. In addition, the study established equity, debt, and taxes to have a significant impact on firm growth and internal finance. These three factors are proposed to be the underlying factors of both firm growth and internal finance. Though performed on listed SMEs; these findings would allow policy makers to design policies that truly promote SME growth.
Masters of Management in Finance and Investment Faculty of Commerce, Law and Management, 2016
Tshabalala, Francinah Bongi (2017) Impact of internal finance on firm growth: a case sudy on South African SMEs, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/23704>