The Impact of Venture Capital Financing on SMEs Growth and Development in Ghana

摘要

The purpose of this paper is to investigate the impact of venture capital financing on SMEs growth and development in Ghana. SMEs play a significant role in the economic development of both developed and developing countries. We applied matching methods by combining PSM-DiD estimation to compare venture backed SMEs with non-venture backed SMEs. We found positive and significant association between venture capital financing and SMEs with regards to increased employment and sales growth. Our empirical results revealed that venture backed SMEs as compared to non-venture backed SMEs experienced increased sales and employment growth by 1.5 percent and 3.7 percent, respectively. One limitation which arises from using PSM-DiD methods to determine the impact of venture capital financing on SMEs growth is that venture capital financing by nature is endogenous. Consequently, the PSM-DiD methods may not adequately be able to address endogeneity problems that may arise from our estimation. Thus, our impact assessment may be inconsistent due to bias selection. Another limitation is that the study only demonstrates a significant impact of venture capital funding on SMEs’ growth in a cross-sectional model, while the long-term effect is not included because many of the SMEs are young. Hence, a longitudinal data analysis of our study may show different results. The results suggest that that SMEs which received VC financing experience better performance in terms of sales and employment growth as suggested. The government should therefore take a holistic approach that strengthens the venture capital market by providing enabling macroeconomic environment alongside the financial resources for SMEs entrepreneurs who chose to access venture capital funding to support the growth and development of SMEs in Ghana. There are limited studies focused on impact of venture capital financing on SMEs performance especially in developing countries. There is no study assessing the effects of venture capital financing on SMEs growth especially in Ghana to the best of our knowledge. This paper provides an insight on the effects of adopting venture capital as funding sources for SMEs growth in Ghana. The paper also indicates the implications of SMEs accessing venture capital to finance their business operations. This paper concludes that SMEs owners should be encouraged to access venture capital financing to improve their business performance. In addition, policy makers should put in place policy measures such as giving tax incentives to Venture Capitalists in order to make venture capital funding easily available to prospective SMEs owners.