BUSINESS- GOVERNMENT RELATION, ACCESS TO FINANCE AND FIRM GROWTH: FIRM-LEVEL EVIDENCE FROM ETHIOPIA

Abstract

This study examines; 1) the effect of business-government relation on access to finance and firm growth, and 2) the impact of access to finance on firm growth. The data was obtained from the WBES which is conducted in 2015 covering the period 2012 to 2014. The study used multiple linear regression model and a standard probit model to examine the impact of business-government relation on Access to finance and firm growth, and investigate the effect of business-government relation on firm’s access to finance, respectively. This paper used a quantitative research approach along with explanatory research design with a target population of 849but only 555 firms satistify our screeing criterions.The following major findings are obtained. First, business-government relation has an impact on firms growth. Second, firm’s that are connected with the government have better access to finance than those who do not. Third, the availability of external finance has a positive strong effect of firm’s growth. Fourth, on average, only 30% of sampled firms have access o finance. Finally the firm’s access to external finance and growth is also affected by firm size, firm age, and sectoral variation. This study recommend company mangers to strengthen the connection with the government and policymakers should developed mechanism that minimize the corrupt relationship between business organizations and the government and try to facilitate the formal business government relation to get access to finance.