Firm Financing Choices and Productivity in Sub Saharan Africa: Evidence from Firm Level Data

Naomi Mathenge and Eftychia Nikolaidou
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Naomi Mathenge: School of Economics, University of Cape Town

No 2018-07, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: This study examines the effect of firm financing choices on firm performance. Firm performance is measured by firm productivity, specifically, the Total Factor Productivity (TFP) of a firm. The study uses firm level data from the World Bank Enterprise Survey (WBES) to investigate the effect of different financing options on the productivity of SSA firms. Using data for the period 2005 - 2013 from 26 countries, the study employs a linear Cobb-Douglas production function to estimate total factor productivity (TFP.) It then uses both parametric and non-parametric methods to analyse the effect of financing options on TFP. The results indicate that firms that rely on bank debt rather than other forms of financing (e.g. internal finance, informal finance, private and public equity) are, on average, more productive. This can be partly attributed to the monitoring activities of banks and the threat of bankruptcy faced by firms.

Date: 2018
New Economics Papers: this item is included in nep-afr, nep-bec, nep-eff, nep-fdg and nep-sbm
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