Investigating The Performance Of Manufacturing And Service Firms In Ghana: The Role Of Financial Access And Firm Innovation

ABSTRACT

Despite the vast and growing empirical literature focusing on the association between innovation, financial access and firm performance, the combined impact of these factors in one study is dearth even though this relationship seems to be important, especially for developing countries. In this research, a conceptual model is developed applying the Resource-Based-View (RBV) theory of the firm to carry out an in-depth analysis of whether firm performance is affected by financial access, and to ascertain, whether innovation mediates this relationship. Firm performance, financial access and innovation are measured by sales growth, the ability of a firm to be given a credit facility, and to offer a new service or product to the competitive market, respectively. The study also controls for firm specific factors (firm foreign affiliation, age, size, and sector type) that may affect firm performance. A dataset from Ghana 2013 Enterprise Survey (ES) put together by World Bank will be used. Using OLS regression techniques, the findings suggest that innovation and financial access are important for performance of firms in Ghana. Also, our findings unearth that specific combinations of financial access with innovation have profound effects on the growth of firms. In particular, the mediating effect of innovation implies an association between financial access and firm performance. Furthermore, the findings indicate that service firms experience a faster growth rate compared to manufacturing firms. Moreover, it is realized that firm size and foreign affiliation affect performance positively, while firm age has a very negligible effect on firm performance. Given, the important roles of financial access and innovation in boosting firm-level performance, it is essential for government to take advantage of them when formulating firm performance policies in Ghana.