ABSTRACT

One of the most critical impediments MSMEs face is the access to finance. This is largely due to the problem of information asymmetry associated with MSMEs. Financing decision is a vital issue for every small business, as its absence often leads to bankruptcy and failure of the business. Extant literature suggests that business owners often finance their firms with different debt-equity ratios. A practical question could be asked as to what factors influence such financing decisions? This highlights the main objective of the study which was to examine the key determinants of Capital Structure of MSMEs within the Adentan Municipality. In this regard, primary data was collected from 150 entrepreneurs and business owners currently with operations within the Adentan Municipality. Findings of the study revealed that, profitability, interest rate of loan, tenure of loan, size of the firm, asset structure, age of the firm, and the type of product or service offered by the firm were all found to be relevant to their financing decision. Regression analysis was performed and the results revealed that, there is positive and significant relationship between the explanatory variables i.e. profitability, age and size of the firm and sources of finance i.e. retained earnings and debt. The researcher suggested that, entrepreneurs need to plough back to internally generated funds and also endeavor to use debt due to its tax benefits. This would enable the firm grow and increase its value. Also, business owners must endeavor to separate themselves from their business and keep proper records of all their business operations. Such records are very important during the process of accessing debt or external financing. Lastly, the researcher recommended that government should create a business friendly environment that would enable MSMEs thrive.

CHAPTER ONE

            Introduction

Chapter one is an introductory section of the research. It presents the design of the study which entails the background of research, statement of research problem, research objectives, research questions, implication of the research, and the outline of the research.

            Background of Research

Ghana has seen a significant surge in the number of entrepreneurs over the past 3 decades whom contribute immensely to Ghana’s economic prospects as well as that of other emerging and developing economies all over the world. Micro, Small and Medium Enterprises (MSMEs) have since become an issue of great concern to governments, policy makers, academicians. (Abor & Biekpe 2007). The importance of MSMEs to the economic development of countries is gaining a lot of recognition. In developing as well as emerging economies, MSMEs comprise the highest proportion of businesses, and employs the highest proportion of the populace.

According to Millineux (2015), MSMEs are they biggest creators of employment in both developing and developed countries all over the world. They account for about 70% of jobs created in developing countries. Also, MSMEs contribute significantly to the economic growth of the nation through the demand for consumer goods which in turn incite economic transaction for sellers of such goods. Correspondingly, they also inspire demand for their products and services by buyers.

Berry et al. (2002) noted that demand as seen is imperative to revenue making abilities of MSMEs and also their capacity incite the need for consumer as well as capital goods. The economic, social and developmental role of MSMEs indicate that it is the interest of the everyone for such businesses to succeed (Fisher and Reuber 2000). Nonetheless, financing has been identified as a constant restriction to the growth and survival of small and medium-sized Ghanaian enterprises.