DETERMINANTS OF FIRM PERFORMANCE: EVIDENCE FROM SMALL AND MEDIUM ENTERPRISES IN ARBA MINCH, SNNPR, ETHIOPIA

Abstract

This study aimed to examine the relationship between Determinants of firm performance: Evidence from small and medium enterprises in Arba Minch, SNNPR, Ethiopia. To achieve this objective, the researcher employed an explanatory research design. A quantitative research approach was used. Secondary type of data was used. The SMEs sample size was selected using a multi-stage sampling technique. Then the collected data was analyzed using descriptive and econometric data analysis techniques. The study found that firm-level factors (internal proxy factors of access to finance) are significantly influencing the firm performance in Arba Minch town. On the contrary, the external proxy factors of the access to firm have a negative effect except the economic development which has positive relation with insignificant effect on the financial performance of the SMEs of the Arba Minch town during the study period. In addition, the debt to asset ratio is also contributing negatively on the financial performance of small and medium enterprises in Arba Minch town. Therefore, the study recommended that it is better to take into measurements to moderate the lending rate of financial institutions and it is better to arrange special credit provision rate (lending rate) to the small and medium enterprises. Besides, it is better to small and medium enterprise to work on the consumption of debt in a way that generates revenue rather than using it to cover some operating expenditures.