ST. MARY’S UNIVERSITY SCHOOL OF GRADUATE STUDIES FACTORS AFFECTING THE CAPITAL GROWTH : OF MICRO AND SMALL ENTERPRISES the case of Kirkos Sub-city, Addis Ababa BY ALEMU ASSEFA ABEBE JUNE, 2014 ADDIS ABEBA, ETHIOPIA FACTORS AFFECTING THE CAPITAL GROWTH OF MICRO AND SMALL ENTERPRISES: the case of Kirkos Sub-city, Addis Ababa BY ALEMU ASSEFA ABEBE A THESIS SUBMITTED TO ST.MARY’S UNIVERSITY, SCHOOL OF GRADUATE STUDIES IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION JUNE, 2014 ADDIS ABEBA, ETHIOPIA ST.MARY’S UNIVERSITY SCHOOL OF GRADUATE STUDIES FACULTY OF BUSINESS FACTORS AFFECTING THE CAPITAL GROWTH OF MICRO AND SMALL ENTERPRISES: the case of Kirkos Sub-city, Addis Ababa BY ALEMU ASSEFA ABEBE APPROVED BY BOARD OF EXAMINERS ________________________ _________________ Dean, Graduate Studies Signature& Date ______________________________ _____________________ Advisor Signature & Date ______________________________ _____________________ External Examiner Signature & Date ______________________________ _____________________ Internal Examiner Signature & Date DECLARATION I, the undersigned, declare that this thesis is my original work, prepared under the guidance of Degefe Duressa (PhD). All sources of materials used for the thesis have been duly acknowledged. I further confirm that the thesis has not been submitted either in part or in full to any other higher learning institution for the purpose of earning any degree. _________________________ ____________________ Name Signature& Date ENDORSEMENT This thesis has been submitted to St. Mary‟s University, School of Graduate Studies for examination with my approval as a university advisor. _________________________ ______________________ Advisor Signature& Date ACKNOWLEDGEMENTS First, I would like to give my grateful appreciation to my Advisor Dr. Degefe Duressa for his constructive suggestions especially, his invaluable and prompt advices, comments, suggestions and encouragements. Without his assistance and guidance, this study would not have been completed. I am also greatly indebted to my class mate Tidenek W/cherkos and my brother Seyum Assefa for their unreserved help and encouragement. I‟m also thankful to individuals working in Micro and Small Business Enterprises development Agency of Kirkos Sub City Administration for making available all the information necessary for the completion of the thesis. i Table of Contents Content ACKNOWLEDGEMENTS ........................................................................................... i Table of Contents .......................................................................................................... ii List of Tables ............................................................................................................... iv ABBREVATIONS ........................................................................................................ v ABSTRACT ................................................................................................................. vi CHAPTER ONE ........................................................................................................... 1 INTRODUCTION ........................................................................................................ 1 1.1 Background of the Study ..................................................................................... 1 1.2 Statement of the Problem .................................................................................... 3 1.3 Research Objectives ............................................................................................ 4 1.4 Research Hypothesis ........................................................................................... 4 1.6 Delimitation of the Study .................................................................................... 6 1.7 Organization of the Thesis .................................................................................. 6 CHAPTER TWO .......................................................................................................... 7 LITERATURE REVIEW ............................................................................................ 7 2.1 Introduction ......................................................................................................... 7 2.2 Overview of MSEs in Ethiopia ........................................................................... 7 2.3 Definitions of MSEs in Ethiopia ......................................................................... 8 2.3.1 The Improved Definition of MSEs in Ethiopia ............................................ 8 2.4 Measuring Enterprise success and performance ................................................. 9 2.5 Success Factors of MSEs and Enterprise Performance ..................................... 11 2.5.1 Impact of Entrepreneur‟s Age on business performance ............................ 11 2.5.2 Impact of Education on Performance of Small Businesses ........................ 12 2.5.3 Impact of Prior Business and Industry Experience on performance of business ................................................................................................................ 14 2.5.4 Prior Management Experience and Business performance ........................ 15 2.5.5 Planning and Performance in Small Enterprises ........................................ 16 2.5.6 Impact of Record Keeping and Financial Control on performance ............ 17 ii 2.5.7 Form of Ownership and performance of business ...................................... 17 CHAPTER THREE .................................................................................................... 18 RESEARCH DESIGN AND METHODOLOGY ...................................................... 18 3.1. Introduction ...................................................................................................... 18 3.2. Research Design ............................................................................................... 18 3.3 Target Population .............................................................................................. 18 3.4 Sampling Procedure and Sample Size ............................................................... 19 3.5 Data Collection Methods and Procedures ......................................................... 20 3.6 Piloting (Instrument Validation) ....................................................................... 22 3.6.1 Validity of the Research Instrument ........................................................... 22 3.7 Data Analysis .................................................................................................... 23 3.8 Ethical Considerations....................................................................................... 23 CHAPTER FOUR ....................................................................................................... 24 RESULTS AND DISCUSION ................................................................................... 24 4.1 Introduction ....................................................................................................... 24 4.1.1 Response Rate............................................................................................. 24 4.2 Enterprises Profile Data .................................................................................... 25 4.3 Descriptive Statistics Results of Total Capital growth Vis-à-vis the Main Variables.................................................................................................................. 27 4.4 ANOVA Results and Discussion ...................................................................... 36 CHAPTER FIVE ........................................................................................................ 39 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS............................... 39 5.1summary ............................................................................................................. 39 5.2 Conclusions ....................................................................................................... 41 5.3 Recommendations ............................................................................................. 42 References ................................................................................................................... 43 APPENDIX iii List of Tables Table No. Title page No. I. Target population .............................................................................................19 II. Number of Samples...........................................................................................20 1. Response Rate .............................................................................................25 2. Frequency and percentage of respondents ..................................................26 3. Capital growth Vs Age of Owners ..............................................................29 4. Capital growth Vs education level. ..............................................................30 5. Capital growth Vs ownership Form .............................................................31 6. Capital growth Vs Managerial experience ...................................................32 7. Capital growth Vs Industrial experience ......................................................34 8. Capital growth Vs record keeping ..............................................................35 9. Capital growth Vs planning practice ............................................................36 10. ANOVA Result ............................................................................................37 iv ABBREVATIONS ANOVA Analysis of Variance CSA Ethiopian Central Statistics Authority FDRE Federal Democratic Republic of Ethiopia GTP Growth and Transformation Plan MOFED Ministry of Finance and Economic Development MOTI Ministry of Trade and Industry MOUD Ministry of Urban Development and Construction MSEs Micro and Small Enterprises MSEDS Micro and Small Enterprise Development Strategy PASDEP Plan for Accelerated and Sustained Development to End Poverty SPSS Statistical Package for Social Science v