Firm Performance Under Financial Constraints: Evidence from Sub-Saharan African Firms

Abstract

Business environment in which a firm operates has an important impact on firm performance. This study examined the impact of credit constraint and power outages on the firm’s investment decision using World Bank Enterprise Survey data collected from firms operating in 13 SSA countries. The study employed a two-part model and the Heckman selection model to estimate the impact of lack of access to finance and poor power supply on a firm’s decision to invest in self-generation. The result obtained suggest that there is a negative correlation between credit constraint and a firm’s decision to invest in self-generation. This indicates that credit constraint negatively affects a firm’s decision to invest in self-generation and firms that are credit constrained have less incentive to invest in self-generation compared to those that are not credit constrained. To test the robustness of the result obtained, alternative definitions of credit constraints were used. Results from alternative regressions using different definitions of credit constraints show that credit constraint affects a firm’s decision to invest in self-generation but not the volume of investment.

Business climate and firm exit in developing countries: evidence from Nigeria

“…The study provided evidence that power outages in all their forms have adverse effects on manufacturing firm performance and are much evident in sales and labor productivity growth rates. Similarly, Iimi [14] established that frequent electrical outages increase corporate costs for enterprises in 26 transition economies in Eastern Europe and Central Asia, while Abdisa [11] observed that investing in self-generation reduces outage loss for firms that invest in it, although such firms continue to experience greater unmitigated outage loss than firms that did not invest in self-generation. On the other hand, Geginat and Ramalho [2] identified the level of bureaucracy in lowincome countries to be a significant factor that explains the inefficiency in utility distribution in these countries and supports the premise that electricity connectivity matters for firm performance.…”

“…Several existing studies have assessed the effect of different dimensions of business climate on firms' performance and growth. An increasing number of them examined the effect of infrastructure on firms' performance [2,[11][12][13][14][15][16], others examined the importance of access to finance [3,[17][18][19][20][21], institutions and regulatory environment [22][23][24], and the cost of bribery and corruption [25][26][27].…”