Bank Loan Financing Decisions of Small and Medium-Sized Enterprises: The Significance of Owner/Managers’ Behaviours

Abstract

The objective of this study is to highlight the influence of entrepreneurs" behaviour on the decisions to apply for bank loans. A mixed research methodology known as triangulation was employed in order to achieve the objective of the study. Data were sourced from a stratified randomly selected sample of 450 Cameroonian SMEs and analysed using logistic regression. The result of the study revealed that both control aversion and overconfidence behaviours of the owner/managers influence significantly the decisions of SMEs to apply for bank loans. From the result, it is found that behavioural finance theory explains the decisions of SMEs to seek for bank credits. Contrary to the predictions of the pecking order theory, managerial behaviours such as the fear to loss the control of the firm, and overconfidence provide explanations on the decisions of SMEs to seek for bank loans. For instance, the fact that debt does not entail any loss of business control urges SMEs to prefer debt than external equity.

The impact of COVID-19 on financing decisions of SMEs in Vietnam

“…Ang et al (2010) state that the decision on sources for finance of SMEs might be affected by the owner because SMEs are often family or sole proprietorship business entities. There is no distinction exists between ownership and control in small firms resulting in the owner making most of the decisions (Baker et al, 2020;Jude & Adamou, 2018). Thus, we believe owners' risk perception about the COVID-19 pandemic will affect SMEs' post-COVID-19 bank lending decisions.…”

“…SMEs financing is a traditional topic that has been discussed much (Jude & Adamou, 2018). According to the pecking order theory of capital structure (Myers, 1984), due to adverse selection, firms prefer internal to external finance.…”

Devising a toolset for assessing the potential of loan financing of projects aimed at implementing energy-saving technologies

“…The contradiction between the urgent need of enterprises to implement energy-saving technologies and the lack of the necessary amount of financial resources for such implementation can be solved using the principles of loan financing [4]. This concerns, first of all, obtaining bank loans by enterprises.…”

Financial Management Practices Among Micro Enterprises and their Implications for Loan Repayment: A Case of Solidarity Group Lending of DCB Commercial Bank in Dar es Salaam

“…According to the Pecking Order theory in financial management, debt capital is the second preferred source of capital to share capital (equity) after the owner has exhausted internal sources of finance (Jibran, Wajid, Waheed, & Muhammad, 2012). Usually, loan (debt capital) as a source of business finance does not dilute ownership of the business compared to share capital which normally invites other external funders who in the long run might claim for a bigger share of business ownership and retain significant power of control (Jude & Adamou, 2018). In terms of cost, loan is considered to be a cheaper source of capital compared to equity for two main reasons: its cost (interest) is fixed and it is a tax-deductible expense (Bracker, Lin, & Pursley, 2018).…”