Factors affecting the growth of small and medium size enterprises in case of Addis Ababa city administration

Abstract

Small and Medium Enterprises are well known as the building blocks of both developed and developing economy. Understanding the growth behaviors of SMEs is quite heterogeneous. The basic aim to constitute this research is to identify and analyze factors that affect the growth of SME. Firm specific factor including: size, age, human capital and managerial competence and business environment factor which include access to finance, access to market, and infrastructure were realized as major factors for SMEs working in Addis Ababa. In this study both quantitative and qualitative approach was used The collected data were analyzed through both descriptive and inftrential analysis and different statistical tools were used to check different test. Empirical model was proposed relating dependent with independent variables and statistical tests were applied to check for relation between growth and independent variable. This study finds the proposed model can explain the expected relations between dependent and independent variables This study has shown that Gibrat's law of size and age independence of enterprise growth is not hold in the case of Addis Ababa. Rather, age of an enterprise isfound to have significantly inverse relation with enterprise growth. Furthermore, growth of SME is found to be affected negatively by both age and initial size, although the impact of initial size is statistically insignificant. It is also found that the direction of growth impacts of age and initial size are insensitive to aleernative measures of growth. Finally, the impacts of environmental factors are weak due to geographical proximity between enterprises and its direct result of environmental similarity.