Thesis Submitted by Mesaud Muhamed Hagos Revised and Last

An Empirical Analysis of Growth Determinants of
Firms in Ethiopia: A Critical Study of

Manufacturing and Merchandise Businesses
A Thesis Submitted To
Kalinga Institute of Industrial Technology (KIIT)

Deemed to be University
(Declared U/S 3 of UGC Act, 1956)
Bhubaneswar 751024
For Partial Fulfilment of the Requirements of the Degree of

DOCTOR OF PHILOSOPHY IN MANAGEMENT (FINANCE)
By
Mr. Mesaud Muhamed Hagos
Research Scholar
Roll No: 1681116
Registration No: 16652351527
Under the Guidance and Supervision of

Dr. Shikta Singh
KIIT University, Kalinga School of Management (KSOM)

April, 2021
An Empirical Analysis of Growth Determinants of
Firms in Ethiopia: A Critical Study of
Manufacturing and Merchandise Businesses
A Thesis Submitted To
Kalinga Institute of Industrial Technology (KIIT)

Deemed to be University
(Declared U/S 3 of UGC Act, 1956)
Bhubaneswar 751024
For Partial Fulfilment of the Requirements of the Degree of

DOCTOR OF PHILOSOPHY IN MANAGEMENT (FINANCE)
By
Mr. Mesaud Muhamed Hagos
Research Scholar
Roll No: 1681116
Registration No: 16652351527
Under the Guidance and Supervision of

Dr. Shikta Singh
KIIT University, Kalinga School of Management (KSOM)

April, 2021
CERTIFICATE
It is hereby certified that the work presented in the thesis entitled, “Estimating Growth of
Firms in Ethiopia: An Empirical Analysis Using Growth Determinants (the case of
Ethiopian manufacturing and merchandising business) ” for the partial fulfilment of the
requirements for the award of Degree Doctor of Philosophy in Management (Finance)
and submitted to KIIT, Bhubaneswar is a bonafide and authentic record of the research
work carried out by Mr. Mesaud Muhamed Hagos during the period from 2016 to 2020
under my supervision.
Furthermore, the subject matter embodied in this thesis has not been in any way
submitted by him for the award of any other degree of this or any other
university/institute.
Signature:
Dr. Shikta Singh
Supervisor, Kalinga School of Management (KSOM)
KIIT University, Bhubaneswar, Odisha
II
DECLARATION BY THE SCHOLAR
I hereby certify that the work presented in the thesis entitled, “Estimating Growth Of
Firms In Ethiopia: An Empirical Analysis Using Growth Determinants (the case of
Ethiopian manufacturing and merchandising business)” for the partial fulfilment of the
requirements for the award of the degree of Doctor of Philosophy in Management
(Finance) submitted to KIIT, Bhubaneswar is an authentic record of my work carried out
during the period from 2016 to 2020 under the supervision of Dr. Shikta Singh. Further,
the subject matter embodied in this thesis has not been submitted by me for the award of
any other degree of this or any other university or institute.
Signature:
Mesaud Muhamed Hagos
Research Scholar
This is to certify that, to the best of my knowledge, the above statement made by the
scholar is correct.
Dr. Shikta Singh
Supervisor, Kalinga School of Management (KSOM)
KIIT University, Bhubaneswar, Odisha
III
DEDICATION
I dedicate this research work to my beloved family, parents, and friends for their great
support and help during my long stay in this research work. The patience and all-round
support my beloved wife and my family showed me, the great care my friends and
relatives provide me, and the care empathy, prayer and moral support my father and two
mothers grant me have been the precious offers enabled me to complete my thesis work.
They paid a priceless sacrifice to get me where I am now.
IV
Executive Summary
Growth of firms is a viable indicator of a growing economy. Considering its viability,
several researchers from different fields conducted large number of studies on growth of
firms and their determinants. The measures of firms’ growth for most of the studies
focused on employment and sales growth. focussing only on these two measure could
not capture the need of different stakeholders. Thus, the main objective of this study is to
analyse and test firm growth factors against different measure of firms’ growth measures.
The data was collected purposively from two major sectors: the manufacturing and
merchandising sectors located in Addis Ababa, Ethiopia. Using a simple random
sampling technique, the study totally employed 1392 firms from the Ethiopian Medium
and Large Scale Enterprises (MLSE). Of which, 625 has been from manufacturing and
the rest 767 enterprises were from merchandising business enterprises. A data collection
instrument was distributed to the owners/managers of the sample firms and an interview
of the survey was administered by enumerators. Some items of the questionnaire were
collected from documented records of individual firms. Growth of the firms was
measured in terms of four growth measures (employment, profit, capital, and perceived
growth). The data was analysed using four different methods. Firstly, descriptive method
of analysis has been employed to present the growth trend of the firms. secondly, a T-test
was conducted to compare growth trend of merchandising against manufacturing firms.
Thirdly, an ordinary Logistic regression had been employed to identify most severe
challenges among the 28 challenges. Last but not list, a structural question modelling was
employed to show path of the relations between the growth determinants and the four
alternative measures of firm’s growth. The finding from the T-test regarding growth
differences shows that no significant difference between growth rate change of the
merchandising and manufacturing sectors, in all of the alternatives growth measures.
Result of the ordered logit model shows that five challenges out of 28 (Higher interest-
rate, continuous devaluation of the currency, Shortage of foreign exchange currency) are
the most severe challenges. Using the structural equation modelling, factors employed to
estimate employment growth have more explaining power than factors used to predict
the other growth measures. Perceived growth ranked second in terms of how the model
was explained using the predicting variables. Capital growth has the third R2 value. The
poorly explained model among the four models is sales growth. Result of the structural
equation modelling indicates that the determinants presumed to estimate all of the
alternative growth measures were not found significant determinants of all alternative
growth measures. However, a factors which affected manufacturing sectors significantly
was also found affecting the merchandising sector similarly. Generally, not all
determinants have an equal importance in estimating the different growth measures.
Thus, future studies on the growth of firms should have to focus on specific factors
affecting a particular growth measure rather than considering all factors as a substitute
one for another.
1
ACKNOWLEDGMENT
It is with immense gratitude that I acknowledge my supervisor Dr. Shikta Singh for her
kind guidance, constructive feedback, valuable suggestions, and encouragement from the
very beginning of the research work up to its completion. I am extremely indebted to her
tirelessly support, motherly, and warm welcoming approach as well as consistent
encouragement to complete the study on time. Her encouragement while I was in the field
for data collection and data feeding as well as her immediate responses to my emails have
been crucially important throughout this research work. Indeed, her support was not only
limited to the research work but also it stretched to the extent of providing priceless
solutions to problems I and my family encountered during my study years.
My appreciation also goes to KSOM director prof. SK Mahapatra, who spent his effort
to make the school environment very comfortable and equipped with all necessary
educational affairs, and training. Dean of KSOM, Dr. SN Misra was also one of the
contributors to the successful completion of my thesis. He never hesitates to give me his
charming invaluable advice and motivation despite his busyness.
I would like to express my deepest gratitude and good wish to Sir. Dr. Achyuta Samanta
a founder of Kalinga Institute of Industrial Technology; Kalinga Institute of Social
Sciences, who has provided us best services during our study and taught us his
philosophy, the art of giving in practice. He stays every holidays with us, he arranged so
many event to make our stay educating, entertaining and comfortable. Thank your sir
from my deep heart. I extend my gratitude and appreciation to Senior Professor R.N.
Subhudi, and B.C.M. Patnik and Professor Damodar Jena for their unreserved support,
priceless suggestions, and invaluable comments throughout the research work improve
the quality of my thesis. As Research Scrutiny Committee they have been so supportive
in providing their invaluable constructive comments.
I would like also to thank the collaborative work of Samara University, the Ministry of
Education, The Ethiopian Embassy in New Delhi India, and KIIT Deemed University for
the scholarship to pursue my Ph.D. study. It also gives me great pleasure to thank Dr.
Teferi Dr. Hayleslasie and Dr. Abraham Gebreyuhannes for their help in facilitating the
II
scholarship opportunity. I wish many thanks to Dr. Suadiq Sufyan Ali and Dr. Hayleslasie
Tsegay Aregawi for their productive feedback on all levels of my thesis work. I would
like also to extend my appreciation to Ebrahim Mohmmed and Seada Endris from Semera
university for their unreserved support especially, during the data preparation and
printing time. I am also indebted to those who support me during data collection time.
Beyond data collection, I am very indebted to the emotional and material support of my
friends Seid Mohammed (Seid-Amir), Yassin Mulleta, Resom Lema, Abdulkerim
Ebrahim, Jemal Mohamedseid, and others. Thank you all.
I want to express my deepest gratitude to my beloved wife Semira Ahmed Mohammed

(Semirina). Her love, care, strength, and patience has been so much supportive in
pursuing my Ph.D. work. She is not only my wife; she has been my advisor and motivator.
Her love and care for our children, Muhami and Rumina Ami, and Umari was the source
of great confidence for me to focus on my study. Dear all my children, I know, it was a
hard time for you when I was not available at the time you needed my presence to take
care of your needs up to my level. Nevertheless, Allah let your beloved mom carry all the
burdens of rearing you single-handed. Semirina, I fully recognize your suffering of
bearing all of the parenthood on your own and I would like to thank you out of my heart
for the unreserved commitment you provide me and our beloved children. My beloved
children, Muhammed Mesaud, Rumeysa Mesaud, Amina Mesaud, and Umer Mesaud, I
can explain the pain you have been feeling during my stay far from your life when you
need me much. Yes, I understand that you are most affected by the absence of your father.
Semirina and my children, God willing, I hope, now onwards I will not let you be alone.
Allah willing, I will try to pay you back what I couldn’t give you during those long days.
My father Mr. Muhamed Hagos Tirfe, you are a role model to me. Your encouragement,
continuous support and priceless advises were so inspiring throughout my study. Father,
I am so grateful to you. My indebtedness also goes to my two mothers Zahab Sheikh Ali,
and Saedia Haji Juhar, for your emotional and material support and unreserved
compliments and care. Above all, your good wishes and duas have been great energy in
my journey. I wish you all prosperous and long life.
III
My brothers Kemal Muhamed, Abubeker Muhamed, Abdurahim Muhamed, Jabir
Muhamed, Alwan Muhamed; my lovely sisters Werkiya Ali, Rahma Mohammed Dardar,
Fethiya Muhamed Hagos, Fatima Mohammed Dardar, Sofiya Mohammed Dardar, Hayat
Muhamed Hagos, and Nurya Mohammed Dardar. You all have been by my side in all
ways and provide me a loving and caring atmosphere in all walks of my life. Special
thanks also go to my brother and sister-in-laws Awol Ahmed, Rahmet Ahmend, Kedir
Ahmed, Anwar Ahmed, Mohamme-Jewad Seid, Mekiya Ahmed, and Hayat Ahmed for
their contributions to my life that would be forever in my memory. Kedre! Aniwa! your
presence for my family during my stay in India was an invaluable gift and I am forever
grateful to you.
Mesaud Muhamed Hagos
Bhubaneswar, India
IV
Table of Contents
CERTIFICATE .............................................................................................................. II
DECLARATION BY THE SCHOLAR..................................................................... III
DEDICATION ..............................................................................................................IV
Executive Summary ........................................................................................................ 1
ACKNOWLEDGMENT ............................................................................................... II
Table of Contents ............................................................................................................ I
List of Figures............................................................................................................ VIII
List of Tables .................................................................................................................IX
List of Equations ...........................................................................................................XI
List of Abbreviations .................................................................................................. XII
Chapter One .................................................................................................................. 13
1. Introduction ........................................................................................................... 13
1.1 Background of the Study Area ......................................................................... 13
1.2 Background of the study .................................................................................. 13
1.3 Problem Statement ........................................................................................... 16
1.4 The Objective of the study ............................................................................... 21
1.5 Research Questions .......................................................................................... 21
1.6 Hypothesis ........................................................................................................ 22
1.7 Significance of the study .................................................................................. 23
1.8 Scope of the study ............................................................................................ 24
1.9 Organization of the Study ................................................................................ 25
Chapter Tow.................................................................................................................. 27
2. Review of Related Literature ............................................................................... 27
2.1 Overview of Firm Growth................................................................................ 27
2.2 Size Comparisons Firms Across Countries and Organizations........................ 28
Section I: Theoretical Review of Firm Growth ........................................................... 32
2.3 Theoretical Review of Firm Growth ................................................................ 32
2.3.1 Theories from Natural Sciences .......................................................................... 33

i) Life cycle theory preached ...................................................................................... 33
ii) Evolutionary theories of growth.............................................................................. 34
I
2.3.2 Theories from Economics ................................................................................... 34
1) An Efficiency Theory of Firm Growth ................................................................... 34
2) The Financial and Demand Restraints (Downie's Model) ...................................... 35
3) Baumol’s Static Models: ......................................................................................... 36
4) Marris’ Theory of the Managerial Enterprise ......................................................... 36
5) Managerial Discretion Theory ................................................................................ 37
6) Penrose: The managerial restraint and diversification ............................................ 37
2.3.3 Resource-based View .......................................................................................... 37
2.4 Metrics of Firms’ Growth ................................................................................ 39
2.4.1 Views Regarding the Meaning of Growth for Business Enterprises................... 39

2.4.2 Firm Growth Indicators ....................................................................................... 40
Sales as a Growth indicator ............................................................................. 41
Change in employment as an Indicator of Firm Growth ................................. 42
Profit Change as Firm Growth Measure ......................................................... 43
Perceived Growth Measure ............................................................................. 44
Other Indicators of Growth ............................................................................. 44
2.4.3 Different route of Growth: .................................................................................. 45
2.4.4 Choosing The Way to Calculate Growth Measures ............................................ 45
2.4.5 Growth as a Process ............................................................................................ 46
2.4.6 Alternative Rates of Growth ............................................................................... 46
Simple Average Growth Rate (SAAR) ........................................................... 46
Average Annual Growth Rate (AAGR) .......................................................... 47
Compounded Annual Growth Rate (CAGR) .................................................. 47
Section II: Theoretical Review of Firm Growth ......................................................... 49
2.5 Empirical Review of Growth Factors .............................................................. 49
2.5.1 Individual Dimension .......................................................................................... 50

Socio-demographic Characteristics ................................................................. 50
Background Characteristics ............................................................................ 53
Personality Traits ............................................................................................ 55
Competences & skills of the entrepreneur ...................................................... 58
2.5.2 Business Level Determinants .............................................................................. 59
Characteristics of Firms .................................................................................. 59
Firm strategies ................................................................................................. 64
Firm-Specific Resources ................................................................................. 68
Organizational structure .................................................................................. 69
II
Dynamic capability ......................................................................................... 70
2.5.3 External Dimension............................................................................................. 70
Macro-environmental factors .......................................................................... 71
Technological factors ...................................................................................... 71
Socio-cultural factors ...................................................................................... 71
Micro-environmental factors ........................................................................... 72
2.5.4 Other Control Factors.......................................................................................... 72
1) Sector dummies ....................................................................................................... 72
2) Merger Experience .................................................................................................. 72
2.5.5 Challenges of Firm Growth ................................................................................. 73
2.6 A meta-Analysis of Ethiopian Firm Growth Studies ....................................... 76
2.6.1 Introduction ......................................................................................................... 76

2.6.2 Methodology ....................................................................................................... 77
2.6.3 Results ................................................................................................................. 77
2.6.4 Conclusion and Recommendation of the Meta Analysis .................................... 88
2.7 Research Gap ................................................................................................... 89
2.8 Conceptual Framework .................................................................................... 92
2.8.1 Dependent variable.............................................................................................. 92

2.8.2 Independent variable ........................................................................................... 96
2.8.3 Firm growth Model of the Study ...................................................................... 98
Chapter Three ............................................................................................................. 102
3. Research Methodology ........................................................................................ 102
3.1 Research Philosophy ...................................................................................... 102
3.2 Research Approach ........................................................................................ 103
3.3 Research strategy ........................................................................................... 103
3.4 Sampling and Data Collection ....................................................................... 104
3.4.1 Unit of Analysis ................................................................................................ 104

3.4.2 Sample frame .................................................................................................... 106
3.4.3 Sample size ....................................................................................................... 108
3.5 Data Source, and Collection Strategy ............................................................ 109
3.6 Data analysis strategy..................................................................................... 111
Chapter Four ............................................................................................................... 117
III
4. Data Analysis and Results................................................................................... 117
4.1 Introduction to Data Analysis ........................................................................ 117
Part I .......................................................................................................................... 118
4.2 Descriptive Data Analysis .............................................................................. 118
4.2.1 Socio-Demographic Background ...................................................................... 118

Position of Respondents in the Business ....................................................... 118
Age of the entrepreneur ................................................................................. 120
Gender of Respondents ................................................................................. 122
Experience of Respondent............................................................................. 123
Educational Background of Business Owner and Family ............................. 125
4.2.2 Basic Information of Firms in Addis Ababa City ............................................. 128
Legal Status of Firms in Addis Ababa City .................................................. 129
Sales outlet in Mercato Location of Firms .................................................... 131
Industry Distribution of Merchandising and Manufacturing Sectors ............ 132
Major Customers of Firms in Addis Ababa .................................................. 134
4.2.3 Financial Sources and Structure of Firms Addis Ababa ................................... 137
External Financial Sources of Addis Ababa Firms ....................................... 138
Internal Financial Sources and Diversification of Addis Ababa Firms ......... 140
Informal Financial Support (Receipts from and payments to Others) .......... 142
4.2.4 Expenses and Losses Incurred Due to Crime Related Losses ........................... 144
Expenses Incurred to be Protected from Crime ............................................ 144
Crime Related Business Losses .................................................................... 145
Losses Due to Theft by Own Employees ...................................................... 146
4.2.5 Financial Status, Number of Employees, and Age and Growth of Firms ......... 147
Financial Status, Number of Employees, and Age of Sample Firms ................ 147
Growth Rates of Employment, Capital, Sales, and Profit of Sample Firms ..... 152
Comparing Growth of Firms in Addis Ababa City Sector wise........................ 160
Combining Data ................................................................................................ 166
Part II Relationship.................................................................................................... 167
4.3 Relations Among Categorical variables and Measures of Growth ................ 167
4.3.1 Absolute Relations Between Growth Measures and Dummy Factors .............. 167
4.3.2 Coefficient of determination eta2...................................................................... 172
Part III Challenges of Firm Growth .......................................................................... 178
IV
4.4 Challenges of Merchandising and Manufacturing Sector .............................. 178
4.4.1 PLUM - Ordinal Regression ............................................................................. 178

Proportional Odds (Ordinal Regression) for Merchandising Sector ............. 179
Proportional Odds (Ordinal Regression) for Manufacturing Sector ............. 187
Proportional Odds (Ordinal Regression) for Pooled Sectors ........................ 191
Part IV Data Preparation for SEM and Path Analysis .............................................. 197
4.5 Uni-Dimensionality of Factors (Dealing with Measurement) ....................... 197
I) Retaining of Constructs Using Parallel Analysis and EFA ................................... 199

II) Reliability analysis ................................................................................................ 202
III) Factor Analysis (EFA and CFA) ....................................................................... 207
4.6 Testing Regression Assumptions ................................................................... 219
4.7 Path Analysis in SEM (Firms’ Growth Determinants) .................................. 222
Regression Result (factors affecting alternative growth measures) .............. 226

Chapter Five ................................................................................................................ 255
5 Summary, Conclusion, Limitation and the Way Forward .............................. 255
5.1 Introduction .................................................................................................... 255
5.2 Summary and Conclusion .............................................................................. 255
5.3 Limitation of the Study .................................................................................. 262
i. Dynamic Nature of Firms Growth Process ............................................................... 262

ii. Unit of Analysis Related Limitation ......................................................................... 263
iii. Sample Size and Problem of Generalization ............................................................. 263
iv. Self-Reported Bias .................................................................................................... 264
v. Erratic, characteristics of firm growth ...................................................................... 264
vi. Idiosyncratic and unpredictable ................................................................................ 265
5.4 Suggestions for Further Research .................................................................. 265
References .................................................................................................................... 268

Appendixes .................................................................................................................. 306
Appendixes: Data Collection Instruments Questionnaires ........................................ 306
Appendix 1A: Survey questionnaire -English Version ..................................................... 306

Appendix 1B: Survey questionnaire -Amharic Version ................................................... 319
Appendixes 2.2: Descriptive Result of Business Barriers and Some Test ................ 331
V
Appendix 2.2 A: Challenges as Rated by Merchandising Sector (Frequency and Percentage
of Scale) ............................................................................................................................ 331
Appendix 2.2 B: Challenges as Rated by Manufacturing Sector ...................................... 332
Appendix 2.2 C: Combined Result of Both Sectors (Pooled) ........................................... 333
Appendix 2.2 D: Assumptions and Model Tests for the Ordinary Regression ................. 334
Appendixes 3: Construct Retaining Procedure Comparing Result of EFA and Parallel
Analysis ..................................................................................................................... 337
Appendix 3.A: Comparison of Eigenvalues Generated Using EFA and Parallel Analysis:
For Merchandising, Manufacturing and Combined Sectors ............................................. 342
Appendix 3.B) Confirmatory Factor Analysis .................................................................. 343
Appendix 3.B.I) Confirmatory Factor Analysis Before Reduction (23 factor 108 items) 343
Appendix 3.B.II Result of the CFA Based on 23 Factors ................................................. 344
Appendix 3.B.III Result of the CFA Based on 16 Factors ................................................ 345
Appendix 4: Assumptions ......................................................................................... 348
Appendix 4.1 Transformation to Normal Distribution of the Four Growth Measures ..... 348
Appendix 4.1A Transformation to Normal Distribution (Employment Growth) ......... 348
Appendix 4.1B Transformation to Normal Distribution (Capital Growth)................... 349
Appendix 4.1C Transformation to Normal Distribution (Sales Growth) ...................... 350
Appendix 4.1D Transformation to Normal Distribution (Perceived Growth) .............. 351
Appendix 4.2 The Assumption of Zero Conditional Mean of Errors ............................... 352
Appendix 4.3) The Assumption of Independence of Regression errors ........................... 353
Appendix 4.3A) Independence of Regression Errors Through Durbin-Watson ........... 353
Appendix 4.3B) Testing Independence of Regression Errors and Linearity: Using
Scatter Plot (Four Models) ............................................................................................ 354
Appendix 4.4 Assumption of Linearity and Normality of Errors Distribution ................. 355
Appendix 4.5) Multicollinearity Issues Using Pearson Correlation of All Continues
Variables ........................................................................................................................... 356
Appendix 4.6 Different Model Tests ................................................................................ 357
Appendix 4.6A Test of Common Method Bias............................................................. 357
Appendix 4.6B Specific Bias Test (Zero Constraints Test) .......................................... 358
Appendixes 5: Result of Structural Equation Modelling .......................................... 360
Appendix 5A1: Standardized Structural Weights of the Merchandising Sector ............... 360
Appendix 5A2: Direct, Indirect and Total Effect of Merchandising Sector (Structural
Weights) ............................................................................................................................ 361
Appendix 5B1: Standardized Structural Weights of the Manufacturing Sector ............... 363
VI
Appendix 5B2: Direct, Indirect and Total Effect of Manufacturing Sector (Structural
Weights) ............................................................................................................................ 364
Appendix 5C: Direct, Indirect and Total Effect of Combined Sectors (Structural Weights)
........................................................................................................................................... 365
Appendixes 6: Map of The Research Area ............................................................... 367
Appendixes 7: Letters of Support.............................................................................. 369
Appendix 8: Published Articles (3 Articles) ............................................................. 372
Appendix 8.A: Scopus Page Indicating Publication of Two Articles (8.B and 8.C shows
abstracts of the two articles) .............................................................................................. 372
Appendix 8.B: Published in Scopus Listed Journal in 2019 ............................................. 373
Appendix 8.C: Published in Scopus Listed Journal in 2019 ............................................. 373
Appendix 8.D: Published in UGC Approved Journal in 2019 .......................................... 374
VII
List of Figures
Figure 1-1 Organization of the Study ............................................................................. 25
Figure 4-1 Age of Respondents for Merchandising firms ............................................ 122
Figure 4-2 Age of Respondents for Manufacturing firms ........................................... 122
Figure 4-3 Education Background of Respondents (Combined Data) ......................... 126
Figure 4-4 Figure 5.2: Legal Status Distribution of Firms in Addis Ababa ................. 130
Figure 4-5 Industries Distribution of Firms in Addis Ababa Combined Data.............. 134
Figure 4-6: Distribution of Customers Merchandising................................................. 136
Figure 4-7: Distribution of Customers Manufacturing ................................................. 136
Figure 4-8: Distribution of Customers Bothe sectors ................................................... 137
Figure 4-9: Payment to for security .............................................................................. 145
Figure 4-10 Payment to for Security............................................................................. 145
Figure 4-11 Payment to for Security............................................................................. 145
Figure 4-12: Loss Due to Theft .................................................................................... 146
Figure 4-15: Employee Growth Since Beginning......................................................... 154
Figure 4-16: Capital Growth Since Beginning ............................................................. 156
Figure 4-17: Sales Growth Figure 4-18: Perceived Growth ................................... 158
Figure 4-19: Perceived Growth..................................................................................... 159
Figure 4-20 Result of the CFA Based on 16 Factor ..................................................... 214
Figure 4-21 Merchandising and Manufacturing Combined Path Model ...................... 230
VIII
List of Tables
Table 2.1 Employment Based Firm Size Categorization ................................................ 30
Table 2.2 Balance Sheet Based Firm Size Categorization.............................................. 31
Table 2.3 Turnover Based Firm Size Categorization ..................................................... 32
Table 4.1 Position of Respondents in the Business ...................................................... 119
Table 4.2 Age Group Distribution of Firms In Addis Ababa ....................................... 121
Table 4.3 Gender Distribution of Respondents ............................................................ 123
Table 4.4 Business Experience of Respondent ............................................................. 124
Table 4.5 Educational Background of Business Owner and Family ............................ 125
Table 4.6 Educational Background Family Members of the Owner ............................ 128
Table 4.7 Legal Status of Firms in Addis Ababa City .................................................. 129
Table 4.8 Sales outlet in Mercato Location of Firms ................................................... 131
Table 4.9 Industries Distribution of Firms in Addis Ababa have Engaged in .............. 132
Table 4.10 External Financial Sources of Addis Ababa Firms ..................................... 139
Table 4.11: Internal Financial Sources and Diversification of Addis Ababa Firms .... 141
Table 4.12: Receipt and payment of Informal Financial Support................................. 142
Table 4.13 Loss from Theft, Robbery, vandalism and related criminal activities ........ 145
Table 4.14 Financial Status of Merchandising and Manufacturing Firms in Addis Ababa
...................................................................................................................................... 150
Table 4.15: CAGR of Employment, Capital, Sales, and Profit growth along with
Perceived Growth ......................................................................................................... 153
Table 4.16 Group Statistics Before Transforming to Normal Distribution .................. 161
Table 4.17 Independent Samples Test on the Compound Annual Growth Rate (CAGR)
of Mrdsg and Mnfg Sectors .......................................................................................... 163
Table 4.18: Group Statistics After Transformation to Normality ................................. 164
IX
Table 4.19 Independent Samples Test on the Normalized Compound Annual Growth
Rate (CAGR) of Mrdsg and Mnfg Sectors ................................................................... 165
Table 4.20 Correlation between categorical independent and continuous dependent

variables ........................................................................................................................ 169
Table 4.21 Table: Comparison of effect size using Coefficient of determination i.e Eta
square (Eta2).................................................................................................................. 174
Table 4.22: Parameter Estimates of ordinary regression for Merchandising Sector .... 184
Table 4.23 Parameter Estimates of ordinary regression for Merchandising Sector ..... 189
Table 4.24 Parameter Estimates of ordinary regression for Merchandising Sector ..... 193
Table 4.25 Number of components retained comparing results of EFA vs PA............ 200
Table 4.26 Different Measures of Internal Consistency ............................................... 205
Table 4.27 Reliability and Validity Measures .............................................................. 208
Table 4.28 The Gaskination's model fit testing plugin AMOS .................................... 216
Table 4.29 Correlation Matrix of 16 Constructs with structural Model Validity ........ 218
Table 4.30: Model fit Indexes ....................................................................................... 224
Table 4.31 Standardized Regression Weights: (Merchandising, Manufacturing, and

Combined of the two sectors - Structural weights)....................................................... 233



Table 4.35 Standardized Effects (All Data - Structural weights) of Variables on

Employment Growth..................................................................................................... 253
X
List of Equations
Equation 2-1 General Equation for calculating CAGR .................................................. 94
Equation 2-2 CAGR of Employees of Ethiopian Manufacturing and Merchandising Firms

........................................................................................................................................ 94
Equation 2-3 CAGR of Capital of Ethiopian Manufacturing and Merchandising Firms

........................................................................................................................................ 94
Equation 2-4 CAGR of Sales of Ethiopian Manufacturing and Merchandising Firms .. 95
Equation 2-5 CAGR of Profit of Ethiopian Manufacturing and Merchandising Firms . 95
Equation 2-6 Regression formula of the firm growth model .......................................... 98
Equation 3-1 Sample size for Ethiopia Manufacturing Sector firms ............................ 108
Equation 3-2 Sample size for Ethiopia Merchandising Sector firms........................... 108
XI
List of Abbreviations
GR= Growth in Revenue
EPS= Earnings Per Share
CAGR = Compound Annual Growth Rate
CI = Confidence Interval
GRT= Gamblers Ruin Theory
MLS= Medium and Large Scale
Mfg = Manufacturing
Mrdsg = Merchandising
SSA = Sub Saharan Africa
SME= Small and Medium Enterprises
ROA= Return on Asset
ROS = Return on Sales
ROI= Return on Investment
SCA= Sustainable Competitive Advantage
XII
Chapter One
1. Introduction
1.1 Background of the Study Area
Ethiopia, with an estimated population of over 113.5 million (Worldometers, July 1,

2019), is a second populated country in Africa next to Nigeria and ranked 12th in the
world. With its relatively large population, the country is endowed with the largest
domestic market in the continent. Over the last 3 decades, Ethiopia became among the
fastest growing economies in the world, with average annual growth rates ranging from
7% to 12% (U.S. Embassies abroad, 2018). In 2017, Ethiopia’s real Gross Domestic
Product (GDP) expanded by 10.9 percent and is expected to grow by 8.5%, according to
the World Bank this year. The National Bank of Ethiopia (NBE) noted that 25.6% of the
GDP growth of the year 2017 contributed by the industry sector whereas the service
sector totally contributed 39.3% to that. The manufacturing and construction sectors have
contributed more than half 75% of the sector’s growth. Whereas in the service sector, the
hospitality industry, the wholesale trading sector, and retail trading dominated most of
the country’s GDP growth. The manufacturing and merchandising sectors that have
played a significant role in the economy of the country are the focus of this study.
1.2 Background of the study
Firm growth as an entrepreneurship study is among the prominent topics of

organizational research (Davidsson &Wiklund, 2000; Delmar, Davidsson, & Gartner,
2003; Shepherd &Wiklund, 2009; McKelvie, & Wiklund, 2010). Since the study by
Gibrat’s 1930s, a large number of organizational growth studies have been and are still
emerging. many researchers including (Achtenhagen, Naldi, & Melin, 2010) believed the
study of firm growth as a way of providing all interested parties (policymakers, investors,
and entrepreneurs) with the required understanding of organization growth.
Despite the substantial ongoing empirical studies getting published every year,
theoretical development in the field has been notably slow (Delmar, Davidsson, &
Gartner, 2003; Zhou, & de Wit, 2009; McKelvie, & Wiklund, 2010).
13
The composite operational result of several economic activities made by the major
players of the economy (investors, governments, consumers) brings economic growth in
several countries. In addition to the expenditure incurred by government agencies, the
spending that the consumers spent, and the investment made by investors in the serves
sector appeared one of the key drivers in the development and growth of the country.
Hence, studying the growth of firms that constitute the investment part of economic
players is considered by many as an important aspect of supporting the growth of
countries at the grass-root level of its economic gears. Especially, understanding factors
that would better explain the growth of firms is believed to have a large contribution to
the stakeholders who are interested in the field of entrepreneurial growth study stream.
Policymakers need to know more about firm growth aiming to gear the activities of firms
into the goals of a country. They know raising tax revenue to support their spending is
possible in well-developed and sustainable growth firms. They want firms to grow more
to help the economy by taking the role in reducing unemployment. The foreign Exchange
balance of a country is also dependent on its export amount made mostly by the firms
with in the country. Hence, as major stakeholders, policymakers and government
agencies need to devise policies that help firms would grow more and thereby contribute
more benefits to support their sustainable growth through which they will support
accelerated economic activities of a country.
Devising such policies thus requires, a deep of understanding about a comprehensive

perspective of firms, especially, through studying 1) what factors more determine firm
growth; 2) which of them should be prioritized and need more government intervention,
and such other related decisions need a detailed and multi-dimensional understanding of
firm growth determinants. Apart from policymakers, various investors, who need to be
informed investment decisions; managers, for their informed strategic and operational
decision; entrepreneurs, for their entrepreneurial decision; they require a wide and depth
understanding of firm growth determinants.
Generally, the literature on the organization and country growth studies confirmed that
welfares of people depend upon the growth of economic players (firms from a different
industry) in the country. Expansion and growth of firms ultimately bring new
14
employment to the society, support in achieving government goals of creating a more
prosperous lifestyle for the society. Economists, politicians, development agencies, and
other stakeholders in the economy, devoted their resources effort in motivating firms to
support the economy. This shows how the stakeholders are dependent on the growth of
firms to maintain their interests. Hermelo, F. D., & Vassolo, R. (2007).
Several researchers from multiple professions and streams are also aware of the
requirement of firm growth. In the extant organization growth research stream, there is
no such a dearth of literature regarding firm growth. The perceived role of business firms
in the development of countries has initiated many researchers to study firm growth
mainly focusing on what determines their growth. Many researchers try to put forward
their suggestions as per their findings and conclusions.
Nevertheless, this immense literature about firm growth cannot bring stakeholders with
a conclusive body of knowledge so that they can depend on their decision with an
acceptable level of confidence Achtenhagen, Naldi, Melin, (2010, p. 289). Besides to the
contradictory results of many firm growth factors in how they affect growth, what factors
have significantly contributed more to the growth of firms, the studies so far reviewed
the researcher did not try to explore all possible factors in a single place and model so
that every stakeholder can have a holistic view in the decision-making process. This is
the rationale behind the selection of this research problem. Hence, in this study the
researcher tried first to explore comprehensively all plausible factors of firm growth and
how they affect firm growth in the context of developing countries taking the Ethiopian
business firms as the target area of the study.
The remaining part of this chapter is presented as follows: Detail discussion of the
problem statement was presented supported with literature review. General and specific
objectives of the thesis have developed from the identified problem statement in this
study. Having these clear objectives, the research prepared brief research questions that
have been investigated later in the analysis part of this study. What benefit will this study
provide, who would be the beneficiary, and how this study will benefit the stakeholders
is presented in the part saying ‘significance of the study’. Next to the significance, the
scope of this study and the limitations the researcher encountered during the study
15
presented. Lastly, the organization of the study is illustrated in its subsection,
demonstrating how does the remaining part of the thesis is organized.
1.3 Problem Statement
It is an objective of several governments to maintain the growth of their economies so

that they can provide the needs of their constituents. Economic growth in a one-or
another-way intern is the result of the activities made by several sectors in that particular
economy. The contribution of growing firms is a major determinant among the factors of
the economic growth of countries. The organizational growth becomes as a centre of the
entrepreneurship research among several scholars in the field (see Collins & Porras 1994;
Gundry & Welsh 2001; Kirchoff 1994; Mata 1994; Ostgaard & Birley 1995; Siegel,
Siegel & MacMillan 1993; Welbourne 1997; Delmar, Davidsson, & Gartner, 2003). Over
the last three decades, determinants of firm growth have been studied in various
disciplines, such as finance, management, entrepreneurship, economics, psychology,
innovation, strategy, and network theory. Supporting the contribution firm growth to the
economy, (Zhou, & de Wit, 2009; McKelvie, & Wiklund, 2010) indicated that the growth
of businesses is an important indicator of a growing economy. The growth of business
enterprises is also important for generating jobs.
Hence, insight into the determinants of firm growth is important from both a policy
perspective and a business perspective. That is why several researchers are focussing on
the field of organizational growth research. Several researchers including (Davidsson &
Wiklund, 2006; Delmar, Davidsson, & Gartner, 2003; Shepherd & Wiklund, 2009;
McKelvie, & Wiklund, 2010) reported that there are considerable interest and substantial
empirical studies from the growth scholars.
Despite the extensive effort of these large number of researchers from various disciplines,
the study of firm growth still lacks an integrated firm growth model which make slow
development of the field. Lack of integrated and holistic view of firm growth study in-
turn, is affecting the comparability of the current studies and resulted in contradictory
growth determinants (Zhou, & de Wit, 2009; Lee, Brown, & Schlueter, 2016). As a result,
stakeholders like policymakers cannot have holistic insight into the field in a way that
could enable them to support their informed decision. The studies rather provide
16
fragmented results using different measures, different factors, and different ways of
research. For instance, research from a psychological perspective focuses on the
behaviour of entrepreneurs; research from a strategy point of view concentrates on the
relationship between environment, business strategy, and growth; while economics
research solely focuses on the relationship between growth and firm size. Thus, there
exist diverse views, with none of them explaining the determinants of firm growth in a
holistic manner.
Various studies might leave researchers, from advancing the firm growth literature;
management, from developing strategies; governments, from implementing business
support and incentive policies, (Stam, 2010), (Derbyshire, et al 2013), (Derbyshire and
Garnsey 2015). Some researchers starting from Gibra (1931) conclude the randomness
or nearly randomness of firms’ growth distribution, while many others including Peneros
(1959) support deterministic stances on firm growth determinants. In line with this issue,
Derbyshire, et al in their review of the Gamblers Ruin Theory (GRT) questions the
conclusion of researchers applying GRT in their study of firm growth that ‘growth of
firms is not under influence entrepreneurs and managers’ while many stakeholders
including managers are contributing to the growth and survival of firms by adjusting their
strategies accordingly with every observed or expected changes (Derbyshire et al, 2013)
These conflicting views about the very nature of firm growth have also contributed to the
variation in the finding’s different researchers. Even within supporters of deterministic
view come up with mixed and paradoxical growth factors. When one factor in a particular
place affects the growth of business positively, the same variable shows a negative effect
on the growth of the firms in another location. A particular variable shows a significant
contribution to firm growth while the same variable shows the negligible result in
different studies; even though it is in the same conditions, location, population…. The
variations in the result are observed and recognized by many researchers (Derbyshire, et
al 2013), (Butler, 2002), (Pearl, 2010).
In an attempt to make an integrated analysis of firm growth, Zhou, & de Wit, (2009)
classified factors into three dimensions, namely: individual, organizational, and
environmental determinants. However, they did not integrate the determinants into their
17
model as complete as they intend to in the review part of their study. Other studies
claimed as conducting comprehensive growth models have also made similar failures.
And most of these studies by focussing on the growth of employee counts the try only to
study from the view of policymakers Achtenhagen, Naldi, & Melin, (2010), not from the
perspective of the entrepreneurs.
Idiosyncratic firm-specific attributes, geographical and locational attributes (O'Farrell, &

Hitchens, 1988) industry-specific, country-specific unique nature of individual business
firms are also among the rationales initiated the researcher to conduct this study.
Furthermore, the mixed nature of the research finding available, about the firm growth
determinants in the existing literature was the main rationale that initiated the researcher
to study this a thesis. This study tried to solve prior growth works by exhaustively
accommodating all plausible growth factors in the existing literature as well as from the
context that Ethiopian firms are operating and availing in.
Accordingly, the studies in the organizational growth largely lack to provide a more
conclusive result to follow by decision-makers. One of the reasons behind the failure to
reach a conclusive theory is that researchers conduct their studies using different firm’s
growth indicators and growth determinants (Brush & Vanderwerf 1992; Chandler &
Hanks 1993; Davidsson & Wiklund 2006; Delmar 1997; Murphy, Trailer, & Hill 1996;
Weinzimmer, Nystron, & Freeman 1998; Delmar, Davidsson, & Gartner, 2003). Hence,
they cannot generate a comparable body of knowledge for the stakeholders in
organizational growth. The idea of firm success for different stakeholders in a firms’
environment shows different views. Sales growth, unlike it’s being the most widely used
measure of firm growth and success (Dess, & Robinson, 1984, p 265), resulting from the
mixed study of Kiviluoto, (2013, p. 569), contends that “sales growth alone tells too
little of a complicated phenomenon and hence cannot be considered a measure of
firm success”. Consequently, he suggested that firm growth measures are better if they
can be studied considering stakeholders like “entrepreneurs, investors, policy-makers,
and venture capitalists” (Gupta et al. 2013).
Generally, the variation in the result of firm growth determinants in the literature might
be caused due to the following reasons.
18
(1) due to difference in the methodology used by the researcher; like a selection of
model which fit the particularity of a study (Butler, 2002; Pearl, 2010), or
representativeness of the sample size (Segarra, and Teruel 2012);
(2) due to the difference in the view of researchers regarding what growth do mean
to the firms and what should be the measurement to gauge the growth (most
growth measures used the change in employment, asset, sales, profit)
(3) due to particularity of the target population taken for research (such as locational,
cultural, nature-related attributes), (Audretsch, & Dohse, 2007);
(4) due to complexity (Derbyshire & Garnsey, 2015) of the firm growth study which
hinders researchers a) epistemologically to get exhaustive data required for
proper analysis of the issue, b) dissecting effect of a particular variable to a
particular effect, c) including confounding variables in the model specification,
and, d) separating the reversal effect of dependent independent variables;
(5) due to the imbedded problem of the existing statistical and econometric
methodology (explaining capacity of regression, statistical tests, and different
estimation techniques) (Derbyshire and Garnsey 2015);
(6) due to difference in philosophical and methodological view of the field of studies
(entrepreneurial view, economics view, finance view, psychological view, ….);
(7) due to the nearly random or stochastic nature of firm growth variability
(McKelvie and Wiklund 2010; Stam, 2010).
Thus, the purpose of this study is first to comprehensively collecting the major factors of
presumed or suggested in the literature as determinants of organizational growth together,
and integrating all of them (actually after conducting all necessary tests) in a
comprehensive growth model which allow readers to see the holistic view of firm growth
from different perspectives. This will give opportunity to the those who (managers,
governments, scholars, and other concerning stakeholders) need a comprehensive
analysis of business growth determinants. The researcher believes that a successful and
an exhaustive investigation of the growth variables in this study will have its contribution
in furthering the firm growth study more forward by deductively testing the propositions
made in the organizational research arena. This intern will give strength to the
development of a theoretical basis ultimately, we believe it will help the researchers and
other stakeholders’ full insight into their business growth initiatives.
19
Secondly, in addition to modelling a comprehensive listing of growth determinants,
major growth measures were also included in the model so that it allows researchers and
stakeholders can compare the result among a list of major growth measures (which are
dependent variables). Hence, testing different growth measures such as employee growth,
sales growth, profit growth, perceived growth, and capital growth against the
comprehensive list of growth factors was considered in this study as an alternative
measure. Especially, including the capital growth in the testing growth model gives our
study weight by filling the need of investors which sees growth mostly from the wealth
maximization viewpoint. Moreover, it is apparent to see underestimated financial
statement items in firms located in developing countries like Ethiopia. Endashaw, 2019
is his study characterized by Ethiopian firms by low tax compliance firms. Consequently,
depending only on such indicators calculated from an underestimated financial statement
might not show the real view about the growth of firms in the county. Hence, the
researcher used additional perception-based growth measures in the model. By doing so
this study will give a comprehensive view about firm growth to managers who are
interested in sales and profit, the government who are interested mostly in employment
growth, investors who are interested in their capital and perceived growth, and
researchers who need a comparative view of firm growth determinants among all the
dependent independent variables of firm growth in a single model.
Thirdly, this study has tried to review the way of calculating growth measures in the
literature that researchers have been following and eventually select cumulative annual
growth rate (CAGR) which allow to smooth down the incomparability might occur in the
case of growth indicators measured in terms of change in absolute value or a simple
change in rate growth. Thus, CAGR was used to measure growth indicators (employee
growth, sales growth, capital growth, profit growth). CAGR is a preferred type of growth
measuring technique compared to others; because it permits much more precise
assessment of the timing effect of growth indicators than growth rates or absolute change
of indicator since start-up (Liedholm and Mead, 1999)
Specifically, the researcher finds out that there is a need to develop an integrative and
comprehensive model of firm growth study for the particularities of the business
environment, and consequently conduct the study on the large and medium business
20
enterprises in Addis Ababa (the capital city of Ethiopian capita). As far as the researcher’s
knowledge, this comprehensiveness in terms of growth measure and growth determinants
in a single comparable model furthers a bit the organizational growth literature. Having
identified these problem statements for the literature, the researcher set the following
objectives.
1.4 The Objective of the study
The main objective of this study is empirically exploring what factors in the growth
literature are affecting growth of firms and how did they affect the different forms of firm
growth measures of the medium and large-scale manufacturing and merchandising
industries in Addis Ababa, Ethiopia. Specifically, the objectives are clearly stated in four
measurable objectives as follows.
 To analyse the growth trend of privately held MLS manufacturing and

merchandising firms in Ethiopia
 To rank the severity of firm growth challenges in the privately held MLS
manufacturing, and Merchandising firms in Ethiopia
 To investigate factors affecting firm-level growth of privately held MLS
manufacturing, and Merchandising enterprises in Ethiopia
 To compare the influence firm growth determinants between the manufacturing and
merchandising firms
1.5 Research Questions
 How firm-level growth of privately owned MLS manufacturing and

merchandising firms is performing in Addis Ababa, Ethiopia?
 What are the major factors influencing firm-level growth (capital, profit, sales
employment, and perceived growth) of MLS manufacturing and merchandising
firms in Addis Ababa, Ethiopia?
 Did the growth factors used in predicting the manufacturing sector affects the
same growth of merchandising firms in Addis Ababa, Ethiopia?
21
1.6 Hypothesis
H1: Business growth measured in terms of employment growth is not different from that
of growth measured in terms of sales, capital, and perceived growth (t-test)
H2: The difference in individual characteristics of business owners/managers does not

has an impact on the growth of businesses in Ethiopia. (ML Regression in AMOS)
H3: Firm attributes did not have an impact on the growth variation among MLS firms in
Ethiopia (ML Regression in AMOS)
H3a: Firm age has not a significant effect on the growth of firms measured in terms
of i) employment growth, ii) capital growth, iii) sales growth and iv) Perceived Growth
H3b: Firm size measured in terms of initial employment did not have a significant effect
on the employment growth of firms
H3c: Firm size measured in terms of initial capital did not have an impact on the capital
growth of firms
H4: Dynamic and strategic capabilities affect the growth of MLS manufacturing and
merchandising firms in Ethiopia (ML Regression in AMOS)
H4a Market orientation does not affect the growth of merchandising and manufacturing
firms
H4b Entrepreneurial orientation does not affect the growth variation of merchandising
and manufacturing firms
H4c Pro-activeness does not affect the growth variation of merchandising and
manufacturing firms
H4d Aggressive pricing strategy of firms have a significant impact on the growth
variation of merchandising and manufacturing firms
H4e Organizational learning capability of firms have a significant impact on the growth
variation of merchandising and manufacturing firms
22
H4f Firm’s preparedness to grow did not have an impact on the variation of growth they
record
H5: Firm’s supply of larger share of their sale to government agencies did not bring a
difference to the growth variation they recorded (ML Regression in AMOS)
H6: Corruption experience can not impact the growth of large and medium scale firms in
Ethiopia. (ML Regression in AMOS)
H7: Having market access did not have a significant role in explaining the growth of MLS
firms in Ethiopia (ML Regression in AMOS)
H8: Regulatory and political instability experience did not bring a difference in
determining the variation in firms’ growth (ML Regression in AMOS)
1.7 Significance of the study
Firm growth study is one of the most studied subjects, but still, fails to provide consistent
results of how the growth of firms can be predicted. Hence, the result of this study will
have the following significances to policymakers, managers of the incumbent firms, and
prospective investors and owners in their decision making process in the way of providing
deep understanding about firms and their growth determinants. Thus, after the successful
completion of this study, it will have benefits in the following instances:
 Policymakers can wisely intervene in improving the firm performance by

assisting firms to tackle those factors that inhibit growth and helping them to
attain those factors that positively affect employment and sales growth. Policy
intervention will ultimately have an implication in the improvement of
employment and wealth growth which help to the growth of a country at large.
 It will give deeper insight into the situation of how the private medium and large
scale business in Ethiopia is growing and ultimately help for devising what must
be done to improve their performance and sustenance in the market.
 Researchers will get somehow deeper understanding as to how business growth

factors can predict firm-level growth in a country-specific economic and cultural
setting.
23
 It can also provide an overview of business growth in Ethiopia for those potential
entrants by providing information on what looks like the growth of incumbent
firms of these particular industries.
 It can have a say in providing better understand firm growth factors for its
exhaustive way of study here than that of studying business growth with few
factors in a fragmented manner.
1.8 Scope of the study
Conceptually the study focussed on three related firm growth issues. It started by
describing the extent, trend, and difference of growth patterns among the manufacturing
and merchandising form of businesses. Having their growth pattern on-hand, the study
tried to explore extensively constructs and variables that presumed in the prior studies as
firm growth determinants, thereby, examine their effect on five forms of firm-level
growth, namely: perceived success, sales growth, and employment growth, capital
growth and expansion of the firm. Finally, a comparison of differences/similarities in the
effect of the firm growth determinants was conducted among the medium and large scale
manufacturing and trading business firms. Hence, what makes it different to be studied
is that of the effort exerted to make it as much exhaustive as possible by including the
possible variable and constructs in predicting the five ways of growth.
Additionally, this study is delimited for most of the variables to the self-reported cross-
sectional form of survey data. But there was in the study a need for financial pattern data,
required to measure business growth. Combining these data, the study tried to show the
path of firms’ growth by introducing and measuring the intermediate variables to the
growth of firms. Thus, this study tried to show the forms of business growth, paths of
firm growth, and the dimension of firm growth.
With regard to the focus of variables for the study, it was tried to investigate as much
complete list of variables as possible. Mainly, the focus of the research was perception-
based responses of firms supported with self-reported financial statement items. It is not
the focus of this research to investigate issues other than the effect of the determinant
variable on firm growth.
24
In terms of a unit of analysis, the study focussed only on selected medium and large-scale
privately-owned manufacturing and merchandising businesses operating in Addis Ababa
city, Ethiopia. Thus, medium and large manufacturing and merchandising firms operating
their major business in Addis Ababa or having an office or operational centre in Addis
Ababa city was part of the study. Because 70% of a medium and large business in
Ethiopia are either established and operating in Addis Ababa city, or they have offices or
showrooms in the city.
1.9 Organization of the Study
Figure 1-1 Organization of the Study

Estimating Growth of Firms In Ethiopia (Research Work Flow)
Chapter 1 Chapter 2 Chapter 3 Chapter 4

Review of
Research Data Analysis
Introduction Related
Methodology and Results
Literature
Part I Part III Part II Part IV

Relationship Between 27
Ranking Severity of Categorical variables and Growth Data Preparation for SEM
Descriptive Data Analysis 28 Firm Challenges Measures
and Path Analysis
Top Five Challenges Selected Including The Top 5 Challenges
Uni-Dimensionality
4.5
Chapter 5 of Factors
Testing Regression
4.6
Summary, Conclusion, Assumptions
Limitation,
And The Way Forward Path Analysis in SEM 4.7
Source: sketched in VSIO 2013 by the researcher
The flow of the research work is demonstrated in figure 1.1 above. Next to the
introductory chapter, this study presents a review of related literature. The review
focusses on three main parts: one is the theoretical review of related literature. Secondly,
the review discusses the empirical part of the review including growth metrics, growth
determinants. Thirdly, the review presented a meta-analysis focussing on the firm growth
25
studies conducted in Ethiopia. The third chapter of this thesis discusses methodology. In
this part, the researcher discussed the research approach and method; the target group,
unit of analysis, and sample size determination; the method of data analysis which shows
how the univariate, bivariate, and multivariate data have been analysed in the study. The
fourth chapter presents the data analysis part of the thesis. The data analysis is categorized
into four parts: the first part presents the univariate analysis which describes some of the
dependent and all of the independent variables. Secondly, the data analysis part discusses
the ordered challenges of firm growth separately. Thirdly, the data analysis part presents
the data clearance and different kinds of tests to prepare the data for further analysis in
using the SPSS and AMOS soft wares.
26
Chapter Tow
2. Review of Related Literature
In order to explore the conceptual framework for the firm growth study, a systematic
literature review approach was conducted in this thesis. As an advantage, this approach
enables the researcher to go through the extant literature content by content Tunberg,
(2017) to help to identify the research gap and designing the required research framework
in the current firm growth literature.
The growth of firms for decades has been a dominant topic in the business growth
literature (Storey 1994; Vivarelli 2007). The study of the industrial organization by
Evans (1987) as cited in (Coad 2009), and entrepreneurship study by researchers such as
(Davidsson 1991; Davidsson et al. 2006; Stam, 2010) highlights tell how firm growth
study become a centre of business organization growth. The understanding we have
regarding the growth of firms is evolving over time due to the growing accessibility of
data for analysis. This permits us to go beyond focussing on the well-known firm age and
firm size rejecting Gibrat’s Law (Stam, 2010). In spite of this tradition, and considerable
progress in understanding the growth of business organizations, several questions are
kept unanswered. This special issue takes stock of the current state of the art in the study
of the growth of new and/ or small and medium-sized firms. The next topics in this
chapter discuss several issues in the firm growth literature and developed a new firm
growth model based on the identified gap in the review.
2.1 Overview of Firm Growth
Business growth is an important indicator of a growing economy (Zhou, & de Wit, 2009).
Several researchers including (Audretsch, Keilbach & Lehmann, 2006; and Praag and
Versloot, 2007) strongly believe that the economic growth of both developed and
developing nations is a result of collective growth recorded by the establishment and
growth of entrepreneurship in the respective countries. Consequently, the theme, saying
‘firm growth drives the economy’ has emerged as a leading idea among scholars in the
27
field of entrepreneurship and policymakers (Audretsch, Keilbach & Lehmann, 2006; and
Praag & Versloot, 2007).
This part of the study focusses on reviewing previous firms’ growth and methodological
related literature which presumed support to study in providing appropriate background
and conduct necessary analysis based on the founded theories. In fact, the literature
doesn’t provide a conclusive body of knowledge regarding which factor is and which
factor is not determinants of business growth. Supporting this claim, researchers
including (Deakins & Freel, 1998; Dockel & Ligthelm, 2005; Ligthelm, 2010, Sefiani,
2013), “argued that the dynamics of the firm growth remain an unexplained like a black
box others have suggested that the growth of businesses is a function of individual-level
attributes, firm characteristics, environmental influences on the enterprises”.
2.2 Size Comparisons Firms Across Countries and Organizations
Firm size determination is country and organization-specific. Several countries and

organizations have set their guidelines for defining large medium small and micro-scaled
firms. Because each economic system, in every country, has its purpose to set the business
size classification. Ayyagari, Demirgüç-Kunt, & Beck, (2003), have conducted a cross
country study about small and medium scalded enterprises in 76 countries. According to
Ayyagari, et al., (2003) each country has its specific industrial regulation to set definition
for the size classification of businesses. In some countries, the base for classification is
annual turnover while in others the base is either balance sheet values (total asset, capital)
or employment headcount based. Besides, some stakeholders classify firm size with a
combination of turnover, balance sheet total, capital investment, and employment count.
Due to these and other variations, the extant literature relating to corporate finance and
entrepreneurship growth have been also conducted with the view of their country
definitions of firm sizes. Thus, it was necessary to have what does the size of firms mean
in different countries mean so that appropriate literature could be used in developing the
growth model for this study. Hence, before conducting a review of related literature
regarding firm growth, the researcher conducted some sort of review on what researchers
meant by size when they present their studies to the public. Accordingly, this section is
28
devoted to showing how some countries and organizations classify firm size in their laws
or regulations.
All over the world, there are different bases for categorizing a firm’s size specifically
followed by countries and organizations. Some used employment headcount as a base for
determining the size of firms, while some others used income statement accounts such as
revenue and balance sheet accounts such an asset, capital, investment. A combination of
two or more bases have been also used in categorizing firm size in different regions of
the world.
The most wildly used categorization of the firm's size is based on the employment
headcount they hired. The countries including the US, China, OECD countries, and
organizations including the world bank, the organization followed these bases for
determining the size of firms. The following Tables demonstrate how countries determine
size including the study country Ethiopia.
Taking employment as a measure of size, as can be seen in Table 2.1, what does it mean
a firm’s size for different countries and organizations is not similar. For instance,
employment, in countries like India, did not consider a good measure of a firm’s size
while all of the other countries used the measure as a tool to categorize firms of their
interest. In the Ethiopian case, the number of employees for micro (less than 5 employees)
and small (up to 30 employees) enterprises are stated clearly. Whereas there no specified
number of employees suggested for the medium and large business enterprises in the
country.
EU countries and the world bank categorization of the size of firms are somehow related.
For the two bottom firm size categories, they assigned a similar number of employees
(less than 10 form micro and less than 50 for small) to determine the size of the
enterprises. However, the required number of employees to categorize medium and large
size firms for EU countries is less by 50 from the world bank requirement. For EU
countries Medium size means firms having up to 250 employees while medium for world
bank needs 300 employees to categorize a firm as a medium-sized enterprise. For large
firms, the world bank requires firms to have employees more than 300; whereas, EU
countries start considering an enterprise and large when a firm has more than 250
29
employees. For the USA, micro-enterprise means firm having less than 20 employees,
whereas firms having less than 100 are categorized in the small category. A medium
enterprise for the USA is firms with employees 101 to 500. Firms with employees greater
than 500 in the USA is considered a large business enterprise.
The number of employees required to determine a firm’s size in China outweighs the
requirement of other countries to do so. The country of the largest population, China
considers an enterprise as small if they hired less than 300 employees. This is considered
a large size in the EU and medium size in the categorization of the world bank. The
Chinese size determination did not explain the cutting point for micro-enterprises.
Medium size for Chines business means having up to 2000 employees. Firms with many
employees beyond 2000 in China are considered large enterprises. The data centre for
several searchers (enterprise survey) considers firms as a micro, small, medium, and large
enterprises; when the firms hired less than five, six to 20, 21 to 100, and greater than 100
employees respectively.
Table 2.1 Employment Based Firm Size Categorization

* ** *** **** ***** ****** *****
Size EU, Enterprises
Category Ethiopia India OECD USA China Survey World Bank
Large Not Defined No >=250 >500 >2000 >=100 >=300
Medium Not defined No < 250 <500 <2000 < 100 <300
Small <30 No < 50 <100 <300 < 20 <50
Micro <5 No < 10 <20 <5 <10
Source: Compiled by the researcher from respected country or organization source
**** USA Susan Ward, (September 27, 2019) SME Definition,
The second most used base to determine the size of firms is taking items in the balance
sheet. observing Table 2.2, EU countries, China, and Ethiopia used total balance sheet
(Asset), while India for manufacturing and the world bank for all forms of firms used
investment in equipment and capital value respectively, as a requirement to determine the
size of enterprises.
30
Table 2.2 Balance Sheet Based Firm Size Categorization
* ** *** ***** ******
Size Ethiopia India EU China World bank
Asset Invest. on Equip. (Mfg) Asset Asset Capital
Large > $ ------m > $ 1.4 m > € 43 m >$57 m > $ 15 m
Medium > $ ------ m ≤ $ 1.4 m ≤ € 43 m <$57 m ≤ $ 15 m
Small ≤ $ .049 m ≤ $ .7m ≤ € 10 m <$5.7 m ≤$3m
Micro ≤ $ .0033 m ≤ $ .034 m ≤€2m ≤ $ .1 m
The amount of assets required to determine micro-enterprises in EU and small enterprises

in China is far beyond the amount required to determine large firms in India and Ethiopia.
To say a firm is small in China there needs to verify if that particular firm has total assets
up to 5.7 million dollars. Whereas, the EU countries need an asset value of up to 10
million euros. Asset value up to three million dollars is sufficient to categorize firms in
small enterprise category in the case of the world bank. Coming to the Ethiopian case, a
total asset value of less than $49,000 is sufficient to categorize firms in the small size
category. For micro-enterprises, there needs only less than $3,300. The difference is
incomparable. Using balance items as a size determining tool, Ethiopia did not specify
asset values for the medium and large business enterprises.
The third way to determine the size of business enterprises is the annual turnover of those
firms. The size of firms for different countries (Ethiopia, India, and all EU member
countries) and one organization (the world bank) is depicted in Table 2.3 as follows. The
size amount of annual revenue stated in the column regarding firms in Ethiopia is not
specifically stated to determine the size of firms; rather it is assumed as an equivalent
tool to determine the size of firms. The amount of revenue, specifically utilized in
determining the size of firms, in this study is taken from their initial purpose that was set
for determining taxpayers’ category. The taxpayer category is determined based on an
annual level of income generated by a firm. The taxpayer category divides business
enterprises into three levels of taxpayers. Considering that the proclamations relation with
the size of the enterprises, this study used the annual revenue of firms as an indicator of
the size of firms for comparison purposes (see Table 2.3).
31
Table 2.3 Turnover Based Firm Size Categorization
* ** *** ***** ******

Size Ethiopia India EU China World bank
Large ≥$ .033 m >$ 34.9 m > € 50 m >$5.7 m > $ 15 m
Medium ≤$ .033 m ≤$ 34.93 m ≤ € 50 m $5.7 m ≤ $ 15 m
Small <$ .016 m ≤$10.04m ≤ € 10 m $5.7 m ≤$3m
Micro ≤ $ .7 m ≤€2m ≤ $ .1 m
The amount of revenue required to determine a firm large for EU countries is annual
turnover of about 50 million Euros. For India, such a category requires about 35 million
dollars; whereas it needs about $5.7 million in China and $15 million in the world bank
criteria of large firms. For Ethiopia, the same category requires only 33,000 dollars. The
amount of revenue required in Ethiopia to categorize a firm in any of the size categories
is incomparably so lower than that of other countries and the criteria of the world bank.
As can be observed in the Tables from 2.1 to Table 2.3, to determine firms under the large
and medium enterprises in Ethiopia needs less number of employees, much less amount
of assets and annual turnover compared to the need of other countries and organization
to determine the same size. Literature focusing on micro and small firms in China, India,
and the USA are the same as literature focussed on large firms in Ethiopia. Hence, the
review of related literature for this study takes studies conducted regarding firm growth
including micro, small, medium, and large firms.
Section I: Theoretical Review of Firm Growth
2.3 Theoretical Review of Firm Growth
A theoretical review of the literature could benefit researchers at least in two main parts
of a study: in the design stage and the data interpretation and analysis stage (Davidsson,
2004). For researchers following the deductive approach (see Davidsson, 2004), it is
apparent that they start from some prior theory that can guide them in designing their
study well. Even those who want to establish a new theory through continuous
32
observation of phenomenon need to have some prior knowledge to base on (Davidsson,
2004). Hence it is worth reviewing the theoretical development of firm growth before
attempting to develop the framework for analysing the factors affecting the growth and
development of firms.
Different disciplines starting from economics to finance from management to behavioural

studies are among the major participants in the study of firm growth research (Zhou, &
de Wit, 2009). despite the effort exerted by several researchers from various disciplines,
firm growth study remains inconclusive (Zhou, & de Wit, 2009). Deficiency in
conducting comprehensive and integrated firm growth study, methodological deviations,
cultural and business environment differences, (see Zhou, & de Wit, 2009) are among the
reasons why the organizational growth field of study is not coming to conclusive firm
growth theories.
Firm growth theories have variations in terms of their focus and scope. The variations
extend to which factors are causes of growth, and verily, is the meaning and
understanding of firms’ growth. Some for example consider growth as a process
(Narayanasamy, 1986) which couldn’t be capture with simple accessing of single time
financial data. Due to such and such variations, the firm growth study became
incomparable with one another (Narayanasamy, 1986). Hence the current literature lost
entirety in its discussion about the growth of business enterprises. But still, it must be
noted that the literature regarding the growth of firms contains aspects which could help
in generalizing the matter and provides sign and direction for empirical research of the
present kind. To sum-up contents in the following pages of this chapter tried to discuss
certain selected theories on firm growth and several empirical studies on firms that are
found to be relevant for this investigation.
2.3.1 Theories from Natural Sciences

“The best known of the biological theories may be classified under organismic and
evolutionary theories of growth and life cycle theory of the firm”. Marshall (1947)
i) Life cycle theory preached

In this theory, the basic notion here is that “firms have a life cycle analogous to that of a
living organism” Boulding (1950) cited in Marshall (1947). The inherent thing in this
33
analogy is the basic premise that growth is governed by laws akin to the laws of nature
and it is somehow a function of age, being rapid at first, slackening thereafter and
completely ceasing with maturity” (Marshall (1947).
During the time of family-level firms, which is before firms become corporations, the
analogy might have worked. But when publicly held big corporations became dominant
in the modern market, the life cycle theory lost sufficient support. According to Penrose
(1971) “the law of growth as postulated by the above economists is neither based upon
economic fact nor upon statistical evidence and the growth of a firm is willed by those
who make the decisions of the firm and are also part of it”. The variable age is taken from
the Lifecycle theory of the firm to see its effect mixed with the other adopted from
different theories of firm growth.
ii) Evolutionary theories of growth

William and Whyte, (1957) and Alchian (1950), believed that for the sake of survival,
firms must make positive profits. Hence, firms do try (consciously or without Penrose,
1971) to make profits even in the absence of how to do profit. This might be done by
imitating the actions of successful firms in the industry. “Chance and natural selection
may be important at times in the short-run in the growth of the firm” William and Whyte,
(1957). But according to Edward and Townsend, (1958) “it is quite doubtful whether
chance by itself in the long-run has a continuing effect upon growth”. Chance represented
with an external locus of control was integrated into the model.
2.3.2 Theories from Economics

In this part, different theories of firm growth in the extant literature are discussed in the
subsequent sub contents. Discussing these theories help the researcher to identify the
existing gap and try to design a way to fill the gap accordingly.
1) An Efficiency Theory of Firm Growth

Scholars from economics, including (Leibenstein, 1966) claim that “there is what may be
called an optimum size of a firm”. Such firms according to (Leibenstein, 1966) are
determined by considerations of firms’ efficiency and such firms tend and can grow to
their optimum level (size). The economic efficiencies according to such economists have
measured in terms of profit growth. The sources of efficiency according to Leibenstein,
34
(1966) are internal external forces. Moreover, under the conditions of efficiency theory,
since all firms in similar markets presumed to have similar market knowledge, all “firms
in such a perfectly competitive market would theoretically be expected to be the same
size” (Simon and Bonini, 1958).
From Leibenstein’s efficiency theory of firm growth, we took the concept of internal and
external determinants of firms’ efficiency (measured by profit growth). This theory
assumes a perfectly competitive market and under such condition, firms are expected to
grow the same size. This thesis tried to test whether the growth of firms is significantly
similar.
2) The Financial and Demand Restraints (Downie's Model)

In Downie's (1958) model, the growth of firms is possible only for those who succeed in
building their capacity and, getting more customers. According to this scholar, for firms
to increase their capacity, finance is the key factor. No matter the source of the finance
(whether it generated internally or raised from external sources) firm growth, specifically,
profit growth depends on a firm’s ability and to raise and access to finance. Hence, “the
rate of growth of capacity will have a definite, if complex, relation to the rate of profit”
Downie's (1958). At the same time, new customers can be attracted by rivals only by
price reduction.
Under the financial and demand theory the firms are in a dilemma to choose among higher
profit rates getting a large number of customers. Because the more the rate of profit the
less will be the demand and ultimately the less the customers to the business. Therefore,
“a conflict exists between the growth of capacity and the growth of the market to be
supplied with the capacity” Downie's (1958).
Downie’s concept of financial and demand restraints focusses on the one of business
resources including finance and customer. This concept is supported even by other
theories of firm growth like the resource-based view, and Penrose’s theory of firm
growth. Thus it is better to include the concept in this inclusive model of firm growth
which its key objective is revealing what would look like after all non-substituting
available variables come together to form the new model.
35
3) Baumol’s Static Models:
According to the static model of Baumol (1962), a “firm’s decision making is limited to
a single period”. Based on the claims of Baumol, the firm attempts to maximize total
revenue during that period instead of planning how much physical sales volume should
be sold. Increasing sales revenue is motivated in according to this view, to provide
stockholders dividend as per their expectations from the firm which ultimately ensures
the stability of his managers’ job. Managers in the modern corporation seek prestige and
higher salaries. Hence, considering the separation of ownership and control in modern
corporations, managers try to magnify their sales revenue even sacrificing the required
rate of profit.
Taking sales growth as an independent variable, testing Baumol’s Static Models in this
study is among the objectives. By doing this the researcher tried to reveal the impact of
sales growth in profit growth.
4) Marris’ Theory of the Managerial Enterprise

The Managerial Enterprise theory of Marris (1964), Greiner (1972) states that owners
and managers of business want to maximize their separate utilities. However, Marris
believes both interests do not necessarily clash, because most of the variables for the
interest of managers and owners have a strong relationship size of the firm (owners’
utility such as profit, capital, sales, productivity, a managerial utility like salary and
emolument job security). Based on these grounds Marris (1964), assumed that
“maximizing the long-run growth of any indicator is equivalent to maximizing the long-
run growth rate of the others”.
Since Marris’ theory believe that the growth of owners’ utility at least in the long run can
bring about the growth of the managers’ utility, the growth of a particular growth
indicator can represent the growth of the others. Three growth measures (capital growth,
profit growth, and perceived growth) were utilized in this thesis to meet the need of
owners, while sales growth and employee growth were included in the model to fulfil the
growth view of managers and policymakers respectively. Controlling both growth
measures in identical data collected from fro similar sample group was presumed to show
if there exist, the difference between the different interested parties. All in all, both
36
Williamson’S (1967) “Theory of Managerial Discretion”, and Marris’ “Theory of the
Managerial Enterprise” have included in determining the firm growth model of this study.
5) Managerial Discretion Theory

In the modern corporate based ownership of firms that create a conflict of interest
between owners and managers, managers are believed only interested in the activities
which can maximize their benefits. Nevertheless, Williamson (1967) refuted this opinion
which claims managers have exclusive managerial discretion by which they make a
balance between maintaining their benefit and ensuring a minimum profit to satisfy the
shareholders. They use the managerial discretion to secure their job as well as they
maintain certain minimum dividend owners.
6) Penrose: The managerial restraint and diversification

Business enterprises based on Penrose's (1959) view are “a bundle of internal and external
resources, which helps an enterprise to achieve competitive advantage”. These bundles
in the long run have more space to grow beyond a certain limit. Growth of an enterprise
according to Penrose (1959) is determined by the “rate at which experienced managerial
staff can plan and implement this plan”. The interaction between the external and internal
environment, facilitated by the experienced managerial staff coupled with grabbed
opportunities and favorable business environment, having creative entrepreneurship are
the key factors mention in Penrose’s theory in determining the dynamics of firm’s
growth.
Penrose’s managerial restraint and diversification concept paid most in developing the
internal and external determinants of firm growth. Because these concepts suggest that
how the interaction between internal and external sources of growth helped with
managerial capabilities can play to the growth of firms. Hence, in combination with the
concept of RBV this thesis exerted much effort to collect all possible opportunities
(external and external), all non-repetitive capabilities, and some barriers from the growth
literature so that the new model will give a better view about firm growth.
2.3.3 Resource-based View

Even though it is not a well-agreed theory, RBV according to Priem, & Butler, (2001b)
is contributing constructively to strategic management research. That is why the view
37
becomes one of the widely accepted and preferable types of management science, for its
ability to create better communication within the strategic management field (Tirfe,
2015). On top of that, a resource-based research approach has an inherent ability of frame
working and encouraging dialogues among researchers (Penrose, 1959; Wernerfelt,
1984; Mahoney, & Pandian, 1992; Ferreira, et al., 2011).
The approach attracted several researchers with their variety of perspectives, into the field
of entrepreneurship and firm growth. Wernerfelt, (1984) defined RBV as “anything
which could be thought of as a strength or weakness of a given firm.” Caves’, (1980) on
his side defined RBV more formally. According to Caves, resources of firms are tangible
and intangible at a given time, which are tied semi-permanently to the firm. Wernerfelt’s,
(1984) definition of resources gives some more detailed examples. According to
Wernerfelt, (1984) “brand names, in-house knowledge of technology, employment of
skilled personnel, trade contacts, machinery, efficient procedures, capital, etc.” Ferreira,
et al., (2011) defined resource as the term resource is limited to those elements which
could improve the efficiency and effectiveness of the business enterprises. Whereas, as
per Wernerfelt, (1984) and Miller & Shamsie (1996) they consider resource as a resource
if it could enhance the capability to avoid the loss or raise profit. Thus, firms with better
capability and to generate income and reduce cost have better resources and as a result a
better growth performance (Peteraf, 1993).
Generally, RBV combined with Penrose's view of helped the researcher to figure out how
internal (the focus of RBV) and external (additional by Penrose’s managerial restraint
and diversification view) combined with capabilities can impact SCA (replaced in this
study by the growth of firms). Variables considered resources in any literature based on
RBV was hence taken to develop the data collection instrument in this thesis. During the
review process of the reviewing resources and result of the presumed resources from the
literature, the researcher didn’t take the VRIN criteria of resources. Because this criterion,
as stated above, luck applicability and measurability (Kraaijenbrink, et al., 2009). As a
result, in the empirical part of this study, the review of determinants was done following
more or less the resource-based view and Penrose managerial restrain concept.
38
In this study we adopted combination of the resource based view (RBV) combined with
Penrose's view of firm growth. To figure out how internal factors the focus was on RBV.
Whereas regarding the external factors we adopt Penrose’s managerial restraint and
diversification view. Generally, whatever the theory it may be all the variables considered
resources in any literature were taken to develop the data collection instrument in this
thesis. As a result, in the empirical part of this study, the review of determinants was done
following more or less the resource-based view and Penrose managerial restrain concept.
2.4 Metrics of Firms’ Growth
Research findings of Delamr (2006) claimed that the result of firm growth studies varies
based on the growth measure employed in the studies. The causes of differences in the
result of the firm growth studies as per Delamr (2006) comes from three sources. The
heterogeneity in metrics of firm growth, the difference in paths of growth which
researchers choose, and due to the specific formulas used to calculate the growth of firms
(absolute or relative growth). This part of the review discusses these issues in the coming
few subsections.
2.4.1 Views Regarding the Meaning of Growth for Business Enterprises

To measure firm growth correctly it is necessary to know what firm growth is first. A
clear understanding of what firm growth means as suggested by Davidsson,
Achtenhagen, & Naldi, (2006), needs referring the early organizational growth literature
like Edith Penrose seminal work and other scholars from the classical era. Because in the
classical era of the firm’s growth literature, specifically, Penrose, (1959) one can get
characterized phenomena of growth. According to Penrose, “The term ‘growth’ is used
in ordinary discourse with two different connotations. It sometimes denotes merely an
increase in amount; for example, when one speaks of ‘growth’ in output, export, and
sales. At other times, however, it is used in its primary meaning implying an increase in
size or improvement in quality as a result of a process of development, akin to natural
biological processes in which an interacting series of internal changes leads to increases
in size accompanied by changes in the characteristics of the growing object” (Penrose,
1959). This clear distinction makes the remaining part of this section very important.
39
Most firms show some sort of the change in their state from time to time (Mead &
Liedholm, 1998). This economic dynamic of through time is thus called firm growth
(Liedholm, 2002) which business enterprises generated from the activities that they are
making in the market. This includes the creation of new firms, the expansion of existing
firms during any given period. While others are closing; at the same time, some existing
firms are expanding and others are contracting. These are the components of the
dynamics of firms that can be summarized into two concepts (Liedholm, 2002). At a
country level firm growth according to Liedholm is “the net firm creation”, which is the
establishment of new firms minus deaths of enterprises and “mobility of net firm
expansion” which is anexpansion of existing business enterprises less contraction of
thereof. This is when growth is measured at the macro-level. Whereas, micro-level firms
measure their growth in different way.
This part of the review discusses the metrics of some sort of firm growth indicators at the
existing firm-level. Because the main focus of this study is only on the second growth
dynamics which focusses on the expansion of existing firms; not on the creation and
extinction or closure of firms. There are growth reports measured in terms of sales,
employee, capital, profit, and perceived ones. The next topic discusses these issues briefly
in separate sub contents.
2.4.2 Firm Growth Indicators

Due to the multidimensional nature of firm growth, scholars could not arrive at a
consensus regarding measuring of growth of business enterprises objectively (Delmar,
2003 et al. and Tirfe, 2015). Consequently, different scholars suggested a range of
different growth indicators which in turn lead the growth literature to show varying and
incomparable results about similar themes of firm growth (Delmar, et.al 2003; Tirfe,
2015). The commonly used growth indicators throughout the organizational growth are
“sales/revenue, employment, performance, market share, asset, profit” (Delmar et.al,
2003; Wiklund &Shepherd, 2005; Robson & Obeng, 2008; Fairoz, Hirobumt, and
Tanaka, 2010, Tirfe, 2015). The next subtopic tried to discuss five growth indicators from
the review of empirical studies.
40
Sales as a Growth indicator
Growth of firms measured in terms of sales revenue is considered the best firm growth
measure (Delamr et.al, 2003) compared to the other measures. For his claim, he put three
reasons. The first is due to that all firms need sales to survive hence it is common to
measure facilitates the need to compare among sales growth of firms; second, a sale is
“relatively insensitive to the capital intensity and degree of integration” in the view of the
management (Delmar et.al 2003); last but equally important, all other indicators often
come following sales. An increase in sales brings mostly an increase in profit, capital,
assets, market share, and sometimes the number of employees (Davidson et.al, 2005,
Tirfe, 2015).
Nevertheless, it is not free of limitation regardless of its intensive use. The growth of
firms measured in sales is not always perfect. Delmar, et.al,2003 put forward four
limitations of sales revenue to measure growth: (i) its sensitivity to economic and
currency fluctuations, inflation and deflation of product prices throughout countries; (ii)
it is not always true that sales growth precedes other measures of growth; (iii) it is not
easily available due to lack of sales records and sensitivity of sales data to access; (iv) it
is sensitive data which firms might not provide sales data to researchers fearing higher
tax rate. Due to these and other limitations taking sales growth, a single growth measure
may not help in a holistic understanding of the growth of firms.
In our study, we have taken self-reported sales and profit data of three years from Addis
Ababa manufacturing and merchandising firms. The calculation of compound annual
growth rate (CAGR) for the two (sales and profit) variables was conducted as it was
suggested by He & Wong, (2004), when they conduct a survey in Singapore and the State
of Penang in Malaysia.
He & Wong (2004), encountered constraints in their survey methodology, due to the
unreliable recalling state of respondents about their firms' sales growth in much earlier
periods. This challenge in turn did not allow them to capture the prior-period sales for
calculating the growth rates they require in their study. Hence they used only three years’
data as an immediate solution to the data unavailability constraint.
41
Firm success for different stakeholders in a firms’ environment shows different views.
Sales growth, unlike it’s “being the most widely used measure” of firm growth and
success (Dess, & Robinson, 1984, p 265), reveals mixed results (Kiviluoto, 2013 p. 569).
This result contends that “sales growth alone tells too little of a complicated
phenomenon and hence cannot be considered a measure of firm success.” (Gupta et
al. 2013). That is the reason why there needs to see another alternative of firm growth
which could fulfil the need of stakeholders who need other than sales as a measure of
firms’ growth.
Change in employment as an Indicator of Firm Growth

Employee based growth measure is another alternative in the field of firm growth. In his
review from several scholars, Tirfe, (2015) found that more than 29 percent of the studies
conducted their studies using employment as a measure of growing their companies, just
after sales which account for about 31 percent of the studies. The advantage of using
employment growth as a measure of growth is justified due to: two reasons as stated by
Tirfe, (2015). Getting employee data is relatively easier; contrary to sales, employment
data is not prone to inflation, and fluctuation in the exchange rate. Accordingly, (USAID,
2002; Davidson et.al, 2005, Tirfe, 2015) prefer employment over sales to test the growth
of firms. And this measure is preferable when policymakers have an interest in
understanding the relation of factors to employment growth so that the devise a policy
fostering employment growth for their constituents.
Generally, business enterprises in developing countries such as Ethiopia are mostly

interested in job creation and expecting the firms to grow in terms of employment.
Therefore, several growth researchers prefer to use employment as an indicator of firms’
growth. (iv) Pensrose (1959) in as cited in Delmar et.al, (2003) suggested researchers
apply employment growth as a measure of firm growth. According to Delmar et.al,
(2003) this type of growth measure is better to apply when resource and knowledge-based
firms are the focus of the studies. (v) Furthermore, there are studies found that growth
measured in the number of employees and measure in sales are highly correlated.
Researchers including (McPherson, 1996; Delmar and Wiklund, 2008; Tirfe, 2015)
argued that growth estimates measured in terms of employment change and change in
sales have similar results. “This may be justified for the fact that the higher the sales, the
42
higher the profit will be. Higher profit in turn would result in higher retained earnings
and higher expansion of facilities and activities which demand a higher number of
employees.” (Tirfe, 2015).
However, employment as an indicator of firm growth might show some biased results
due to its vulnerability to the effect of several factors including the productivity of labor,
substituting labor-intensive processes with machine and technology, and degree of
integration in the firm (Delamr et.al, 2003). A firm can considerably grow in many
aspects such as productivity and revenue without any increase in employment
(Mcpherson, 1996). For instance, some business enterprises may choose to subcontract
work or a process instead of hiring more employees. An increase in employment is not
an interest in business following strategies. Their ultimate aim instead is reducing the
number of employees regardless of the increase in sales. Due to the seasonal nature of
works, some firms might not increase employees even after they achieve a large number
of sales. (McPherson, 1996; USAID, 2002). Moreover, some firm owners prefer to stay
small with the existing number of employees, or hiring casual workers until they become
certain that their business needs permanent employees, and even prefer sometimes get
helped with family workers.
Profit Change as Firm Growth Measure

Profit growth is another form of growth indicator which researchers have been using it in
their entrepreneurship growth studies. Several studies (Cragg and King, 1988; Chandler
and Hanks, 1994; Dollinger, 2003; Barth, 2003; Westhead et al., 2001, Edelman et al.,
2005) have used profitability as a measure of firms’ growth and performance. Moreover,
researchers including Edelman et al. (2005); Chandler and Hanks, (1993) advocate that
using profitability in examining firm growth study is a better alternative measure. There
are some reasons why researchers such as Delmar (2003) preferred profit change as a
better growth measure.
Although growth in profit is universally relevant, it has certain drawbacks that must be
considered. For example, “different firms regardless of their similarity in the business
line, efficiency, and effectiveness of management, they might show different amounts of
profit as the result of using different methods of accounting system” (Edelman et al. 2005;
43
Tirfe 2015). Besides, like sales value, profit is vulnerable to economic fluctuations and
inflation Edelman et al. (2005). There is a critical drawback though, related to keeping
profit in the books of accounts. Owners at their early stage might not keep sales as well
as a profit of their firms (Delmar et.al, 2003; Edelman et al. 2005; Tirfe 2015). Hence,
obtaining reliable profit data is somehow a difficult task compared to getting employees
to count data: which is easily remembered by owners and not considered thereby risky to
report to tax collectors.
Perceived Growth Measure

The firm’s growth has also been measured using a self-reported perception-based growth
measure. For instance, the study by López, Peón, & Ordás, (2005) showed that his four-
item scale was developed to measure the economic and financial performance of 195
Spanish firms. Such kind of performance-related measures has objectivity concerns
(Davidsson, Delmar, & Wiklund, 2006). Nevertheless, they are less prone to
underestimation problems like the collecting misstated financial-statement-based growth
indicators by which such a result may lead to incorrect conclusions.
Other Indicators of Growth

There are also other measures of growth, such as asset, physical output, and market share
have less applicability and therefore they are not frequently utilized as indicators
(Davidsson, Achtenhagen, & Naldi, 2005). For example, “such indicators as market share
and physical output can only be compared within industries for firms with a similar
product range. The ‘market’ in market share calculations may be ambiguous; differences
in market share may be irrelevant for firms in countries without a secondary market like
Ethiopia. Using an indicator such as total asset value is highly related to the capital
intensity of the industry and sensitive to changes over time and is difficult to assess where
the key asset is knowledge. Physical output can hardly be compared across industries.”
(Davidsson, et al. 2005).
Generally measuring growth based on employment and financial statement items like
sales or assets is considered an objective measure (Davidsson, Delmar, & Wiklund,
2006), compared with performance-based growth measures such as self-reported
perceived growth indicators which are subjective, by which respondents are asked to
44
evaluate their business growth relative to goals they set, close competitors and or the
industry. To harvest the quality of each of these indicators and avoid their weakness
Davidsson, et al., (2006) suggested that researchers should consider the uniqueness of
each indicator in some respects, “it is better to examine these indicators separately in
more depth.” Based on Davidsson’s suggestion we developed an inclusive growth model
taking both subjective (self-reported perceived growth) measures and the objective ones
(employment growth, sales growth, capital, and profit growth).
2.4.3 Different route of Growth:

The path by which researchers employed to test the growth of firms has also its impact
that can create difficulty in finding a uniform and comparable results in the growth
literature (Ylitalo, 2010; Tirfe, 2015). Firms can grow in different ways. Tirfe (2015)
citing from Ylitalo (2010) categorized the way that growth is viewed into three routes:
“acquisition versus organic growth; domestic growth and internationalization; and
growth through diversification and replication.” The growth magnitude between firms
changed due to organic growth and firms changed due to merger and acquisition couldn’t
give often similar results. For instance, employment growth may be larger in the case of
organic growth, whereas the acquisition form of growth takes the existing employees
from the acquired firm which doesn’t help in increasing employment to the at country
level. As a result, other studies should consider the different routes of growth in their
studies.
2.4.4 Choosing The Way to Calculate Growth Measures

Besides the differences in determining indicators and routes, a firm growth study has
faced some difficulties due to the specific formulas followed by different researchers to
calculate the hardly decided growth measures. For example, the growth of firms can be
measured in absolute or relative terms (Wiklund and Shephared 2003). “The absolute
growth refers to the actual change in the size of the company between two points in time,
while relative growth is the change in the initial size firm. Relative measures favor growth
in small firms, whereas absolute measures favor large firms.” (Davidsson, Delmar, &
Wiklund, 2006). Irrespective of the formula used, “absolute or relative,” the growth of
firms depends on their size. “Relative measures favor growth in small firms, whereas
absolute measures favor large firms” (Delmar, 2006). “This is because small firms tend
45
to grow faster than larger firms when growth is measured as relative change, but larger
firms tend to grow more in absolute scale” (Delamar, 2006; Ylitalo 2010).
2.4.5 Growth as a Process

Some consider the growth of business enterprises is a long term process. Factors affecting
the growth of a particular firm are not constant and specifically defined. Rather, they vary
over the life of the enterprise Delamar et al (2003). Attitudes and motivation of owners
to grow or not to grow could be changed due to the condition in their environment. As a
result, Delamar et al (2003) suggested not to depend on first and last year data points for
collecting growth-related data. Because this approach couldn’t fully capture the process
of growth. This means the behavioural change of owners and managers, the long term
business fluctuations, the fortunate events, and sudden decline a firm experienced in
between the two data points could not be captured only by collecting from beginning and
end year data points. For this reason, “it may be unwise to assume that nothing, but only
change in size, has occurred during the growth process” (Davidson, et al, 2005).
Consequently, Davidsson, et al (2005) suggested researchers conduct the firm growth
studies based on longitudinal data.
2.4.6 Alternative Rates of Growth

With regard of calculating growth rates (determined in terms of employee growth),
Liedholm and Mead (1999), stated three alternative methods: (1) simple annual growth
rate measured in an absolute change of the growth measures; (2) average annual growth
rate (AAGR) measured in percent; and (3) annual compound growth rate (ACGR)
measured in percentage
Simple Average Growth Rate (SAAR)

The first alternative is the simple average annual rate (SAAR). This method calculates
the growth rate starting from the establishment of the firm. Based on Liedholm and Mead
(1999), this method uses employment average annual growth since start-up. The way of
calculation is depicted in the following question.
𝐶𝑉 − 𝐵𝑉
𝑆𝐴𝐴𝑅 = ( )
𝐵𝑉
46
Where: CV= Current value, BV= beginning value
Even though it is simple to calculate it may hide employment rate fluctuations occurred
over the life of the business. For example, Mcperson, (1996) raised a concern “a firm
may have begun as a single-person operation, grown rapidly for a time, but then shrunk
back to one person.” SAAR doesn’t allow us to see the events in the middle of business
operation. Measuring growth using SAAR considers only two endpoints; the beginning
and the ending. As a result, it could mask “important parts of the growth process”
(Mcperson, 1996 cited in Tirfe, 2015).
Average Annual Growth Rate (AAGR)

“The average annual growth rate (AAGR) shows that the arithmetic average increase in
the four types of firm growth measures employed in this study”. For employment and
capital growth, the calculation was performed using the beginning and ending data of
firms. Whereas in the case of sales growth and profit growth, the calculation was done
only for the last three years of firms in Addis Ababa. AAGR was The computed as follow:
𝐶𝑉 − 𝐵𝑉
(
𝐴𝐴𝐺𝑅 = 𝐵𝑉 )
𝑁_𝑃𝑒𝑟𝑖𝑜𝑑𝑠
Where: CV= Current value, BV= beginning value, N_Periods= number of years the
companies in business operation.
Due to its linearity, computing growth using AAGR is relatively simple. Growth
measured in terms of AAGR could help in showing trend related issues. However, the
method does not consider the compounding effect of the measures through time. As a
result, it may lead readers to rush generalization showing inaccurate financial analysis
(for example in some cases, it can overestimate the growth of an investment).
Compounded Annual Growth Rate (CAGR)

CAGR is an important measure of firm growth specifically for multiple periods. It can be
thought of as the growth rate that gets you from the initial investment value to the ending
investment value if you assume that the investment has been compounding over the
periods. Berk, & DeMarzo, (2013) defined CAGR as “a rate of growth that tells what an
47
enterprise's growth in employment over the years on an annually compounded basis
which is measured in percent.” CAGR (i.e., the geometric average rate of return over the
corresponding period). It is equivalent to the IRR of the investment over the period. Its
advantage is its consideration for the volatility of returns. The compound annual return
according to Berk, & DeMarzo, (2013) is a better description of the long-run historical
performance of an investment. Because it describes the equivalent risk-free return that
would be required to duplicate the investment’s performance over the same period. The
ranking of the long-run performance of different investments coincides with the ranking
of their compound annual returns. Thus, the compound annual return is the return that is
most often used for comparison purposes Berk, & DeMarzo, (2013). It can be calculated
as following:
1
𝐹𝑉 (𝑁_𝑝𝑒𝑟𝑖𝑜𝑑𝑠)
𝐶𝐴𝐺𝑅 = ( ) −1
𝐵𝑉
Where: FV=Final Value, IV=Initial Value, and N= number of years presumed for
calculation.
CAGR is a better measure of return over time. Average annual return ignores the effects
of compounding and it can overestimate the growth of an investment. CAGR, on the
other hand, is a geometric average that represents the one, consistent rate at which the
investment would have grown if the investment had compounded at the same rate each
year.
The geometric mean differs from the arithmetic average or arithmetic mean, in how it's
calculated because it takes into account the compounding that occurs from period to
period. Because of this, investors usually consider the geometric mean a more accurate
measure of returns than the arithmetic mean.
The use of CAGR is preferred in several studies because it permits much more precise
assessment of the timing of employment growth effect, than growth rates or number of
changes in employment since start-up (Liedholm and Mead, 1999)
Crump, (1998) argued in this paper that one should use the type of mean for which the
total risk that would result if every member of the population was exposed to the mean
48
level is as close as possible to the actual total population risk. Using this criterion
arithmetic mean is always preferred over a geometric mean whenever the dose-response
is convex. In each of several data sets examined in this paper for which the dose-response
was not convex, arithmetic mean was still preferred based on this criterion Crump,
(1998).
Section II: Theoretical Review of Firm Growth
2.5 Empirical Review of Growth Factors
Several disciplines starting from finance to economics from management to behavioural

researches are among the major participants in the study of firm growth (Zhou, & de Wit,
2009). the findings resulting from these various disciplines generally shows the growth
of business enterprise (sometimes determined as success or performance) is a function of
both external and internal factors (Penrose, 1959; McCline et al., 2000; Guzman &
Santos, 2001; Markman & Baron, 2003). supporting this idea, Beck & Demirguc-Kunt
2006, Sefiani, 2013) argued that for a new firm to grow it is essential to strengthening
not only the internal business environment but also it requires having a conducive
external business environment, enabling the business to benefit from its business
undertaking.
Several studies have been proposed many factors affecting the growth of business
enterprises. Besides the growth factor, the firm growth studies have exerted much
attention in their studies on how business growth is measured. Even though it is not the
scope of this study to focus on the detailed review of the literature regarding these issues,
a brief review of two crucial themes (measurement and factor of firm growth) is provided
from the field of entrepreneurial and business growth studies.
In the first place, the alternative growth metrics were discussed before going to
presenting the factors of growth. the second theme which is factors of firm growth is
conceptualized into four themes. 1) Individual-level factors, 2) firm-level factors, 3)
external factors and 4) barriers of growth. individual-level factors are characteristics and
qualities that business owners or managers have; while firm-level factors are variables
that are associated with the business level attributes existed, and business strategies
49
followed internally within the business. The external factors on the other hand are
variables, consisting of environmental and industry-related factors and government-
related factors such as services and regulatory conditions.
Generally, of the firm growth factors, the growth literature usually tried to identify several
factors that could be categorized as individual-level factors, business-level factors,
environmental level factors, and some business challenges. The following section thus
tries to discuss the four categories of firm growth factors as from the entrepreneurial
studies made all over the world.
2.5.1 Individual Dimension

The growth of a firm is to a certain extent a matter of decisions made by an individual
entrepreneur (Zhou, & de Wit, 2009). Previous studies indicate that an entrepreneur’s
personality traits, growth motivation, individual competencies, and personal background
are the most important determinants that determine the growth of a firm (Baum et al.,
2001; Delmar, 1996; Shane, Locke & Collins, 2003). These determinants are detailed in
the following sub-sections.
Socio-demographic Characteristics
The literature on socio-demographic characteristics usually offers a great deal of
statistical research and endless figures on origin, age, socio-economic status, and gender
(Zhou, & de Wit, 2009). Hence, this study tried to integrate the socio-demographic
characteristics of firms in Addis Ababa into the growth estimation model going to be
discussed later in the analysis part. Discussing this issue, in turn, will have its impact on
the firm growth literature in understanding (at the list at cultural difference level) about
the effect of socio-demographic traits on the growth of merchandising and manufacturing
firms in the study location (Addis Ababa, Ethiopia). Thus age, the gender of an
entrepreneur, level of education, experience, and other socio-demographic characteristics
of firms’ owners or long term managers were included in the study at least until the data
clearing and preparation condition for analysis.
Age of the entrepreneur
50
The age of business owners is one of the factors that have got the attention or researchers
in the organizational field of studies. Several researchers report that age plays a
significant role in affecting the growth of the studied firms. In this statement, Hambrick
& Mason (1984) claimed that age is largely associated with more “conservative
behaviour,” and thus imposes a negative effect on the growth of the firms for three
reasons. Firstly, an older owners or manager in principle is less inclined to adopt
innovative behaviour or to hesitate to adhere a new idea in the business arena. “Secondly,
such a manager would be more attached to a certain organizational status-quo. Finally,
objectives related to wage and professional security, generate a more prudent behaviour.”
(Hambrick & Mason, 1984). It has been suggested that younger individuals would, on
the other hand, be more inclined to take risks and keen to make grow their business
(Hambrick & Mason, 1984).
Reynolds et al. (2000) found that “individuals aged 25-44 years were the most
entrepreneurially active. Findings from another study in India by Sinha (1996) disclosed
that successful entrepreneurs were relatively younger.” In their exploratory study of
owner-managers and firm characteristics in Nigeria, Woldie et al. (2008) reported that
“middle-age and older owner-manager tend to run more growth-oriented firms.”
Gender of the entrepreneur
A large number of literature has been published on the effect of gender on the
performance of businesses. These studies usually produce mixed results. Storey (1994)
explained that “in the developed country literature on small firm growth, most studies do
not find gender to be significantly associated with firm growth.” In a quantitative and a
qualitative study that set out to assess gender-related differences among 32 micro rural
enterprises in Sweden, Sandberg (2003) concluded that there were few differences. In
another study that was based upon analyse s of data generated annually over three years
from an initial group of 411 companies in the computer sales and software, food and
drink, and health industries in South Central Indiana, Kalleberg & Leicht (1991) found
that “female business owners were not more likely to go out of business, nor less
successful, than those owned by men.”
51
The performance differences between male and female-owned businesses could be
explained by several variables that are highlighted in the literature. Many studies have
proposed that gender effect on performance is mediated by other variables such as the
level of experience (Kalleberg & Leicht, 1991; Fischer et al., 1993; Cliff, 1998;
Kamitewoko, 2013), firm age (Rosa et al., 1994; Watson, 2002), the choice of industry
(Rosa et al., 1994; Watson, 2002), entrepreneurs’ values (Brush, 1992; Du Rietz &
Henrekson, 2000), etc.
Many researchers have argued that women have been associated with lower levels of
human capital and have had fewer opportunities to develop relevant experience, and
consequently have greater difficulty in assembling resources (Ucbasaran et al., 2004;
Martinez et al., 2007). According to Mazzarol et al. (1999), females were generally less
likely to be founders of new businesses than males. Similarly, using a sample of 128
Norwegian undergraduate business students, Kolvereid (1996) found that males had
significantly higher entrepreneurial intentions than females. However, although the
developed country literature often construes women entrepreneurs as less likely than their
male counterparts to seek firm growth, several researchers have argued that this applies
only to a subset of women-owned firms (Hill et al., 2006; Harada, 2007; Chaston, 2008).
In the developing country literature, several gender-related business obstacles have found
affecting the performance of women-owned firms. “Women typically face asymmetrical
rights and obligations limiting their labor mobility and burdening them with
disproportionate household responsibilities” (Downing & Daniels, 1992). In Ethiopia,
“the men are the main entrepreneurs.” This inequality can be explained by different
variables as argued by Le Marois (1985): "to undertake, one must accumulate qualities,
skills, motivations, examples, and resources in sufficient quantity and quality to
overcome a series of obstacles. If the number of women is less than the number of men
to go through, it is without a doubt because the ratio of positive factors (qualifications,
etc.) and negative factors (barriers) is not the same for them than their male counterparts,
the first factors would act more weakly and the latter more strongly."
As for the success of small and medium business organizations, the study by Rachdi
(2006) concluded that “women entrepreneurs often suffer from a lack of technical
52
expertise and knowledge management; hence, their low productivity and
competitiveness. Cultural constraints are also another obstacle that hinders the success of
women in the conduct of their affairs.” This supports the view of many researchers who
argued that “women have been associated with lower levels of human capital and have
had fewer opportunities to develop relevant experience and consequently have greater
difficulty in assembling resources.” (Ucbasaran et al., 2004; Martinez et al., 2007).
Background Characteristics
Several previous studies found that “the individual background of the entrepreneur, such
as education and previous experience, had an impact on entrepreneurial intention and
endeavor.” (e.g. Kolvereid, 1996; Mazzarol et al., 1999; Kamitewoko, 2013).
Background characteristics of active firm owners or managers are discussed in the
remaining few pages.
Family background
A considerable portion of the growth literature has supported the idea that “a high
percentage of entrepreneurs come from fathers who are entrepreneurs themselves”
(Hisrich & Brush, 1987; Gray et al., 2006). Bolton & Thompson (2004) argued that
family background is important to the entrepreneur. Well-educated parents who inspire
independence and self-reliance confer on their offspring an early advantage; while
wealthy parents can assist with start-up capital (Rwigema & Venter, 2004).
Previous experience
Numerous researchers including (Fielden et al., 2000; Guzman & Santos, 2001) argued
that the entrepreneurs’ previous experience has a greater impact on the growth of SMEs.
The claim that higher entrepreneurial qualities are a result of greater previous business
experience. Because such experience involves “a learning process that helps them to
identify opportunities, reduce their initial inefficiency, and also improve their capacity in
performing various tasks” (Fielden et al., 2000; Guzman & Santos, 2001). Previous
business experience includes work experience, business management experience, and
industry-specific experience (Rauch & Frese, 2000; Gundry & Welsch, 2001; Guzman &
Santos, 2001; Ucbasaran et al., 2004; Kamitewoko, 2013).
53
According to Deakins & Freel (1998), “one of the key factors influencing the
entrepreneurial process is the ability to assimilate experience and to learn from
experience itself.” In an empirical Mazzarol et al. (1999) “analysis of 93 entrepreneurs in
Western Australia, found that respondents with previous experience in government
employment were less likely to be successful founders of small businesses.” However,
their study did not investigate the relationship between previous employment experience
in private companies.
Previous labor market experience was an important factor for survival (Woldehanna,
Amha, & Yonis, 2018). Consistent with the result of Taylor (1999), cited in Woldehanna,
Amha, & Yonis, (2018), active labor market participation before the start-up reduced the
risk of drop-out. But, as Kalleberg and Leicht (1991) cited in Woldehanna, Amha, &
Yonis, (2018), found that “there was no significant relationship between self-employment
experience before the start-up and business survival. Previous general business and
apprentice experience did not have a significant impact on a firm’s survival”
Woldehanna, Amha, & Yonis, (2018).
Education
The educational level of owners and managers is another interesting factor discussed in
several studies. Several studies claim education is “a means through which skill and
knowledge can be gained and includes all the teaching, formal and informal learning,
tutoring and instructing individuals receive in their background years” (Dahlqvist et al.,
2000; Rwigema & Venter 2004; Ucbasaran et al., 2004). The importance of education on
entrepreneurship has been extensively mentioned in the literature. While some studies
established that “the level of education of the manager has a positive impact on
performance” numerous, others, however, noted that “there is no link between education
of the entrepreneur and business performance” (Brush & Chaganti, 1998),
Correspondingly, Brush et al. (2001) “argued that formal education is an important
personal resource for entrepreneurs because it provides good technical knowledge that
may help identify business opportunities.” In line with this, Sapienza & Grimm (1997),
for example, contends that “search skills, foresight, imagination, and computational and
communication skills are enhanced through a college education. Moreover, specific
54
forms of knowledge-intensive education, such as engineering, computer science, and
biochemistry, provide the recipients of education an advantage if they start a firm that is
related to their area of expertise.” According to Rogerson (2001) and Martinez et al.
(2007), “a firm’s capacity to compete is embedded in incumbent’s education, which is
related to knowledge, skills, problem-solving ability, discipline, motivation, self-
confidence, and behaviour of entrepreneurs that allow them to identify market
opportunities and gather resources required to set up the business.”
In developing countries, the study of the effect of education on an entrepreneur's

performance is complex. This is because “SMEs' owner-managers and workers often tend
to have relatively low levels of education than do larger firms” (Orlando & Pollack, 2000;
Soderbom & Teal, 2001).
Personality Traits
After several years of research on characteristics (attitudes, values, and traits) of
entrepreneurs’ numerous researchers found that “characteristics of the entrepreneur are
the most influential factors related to the performance of SMEs and their
competitiveness” (Gartner, 1989; Man et al., 2002; Simpson et al., 2004; Gurol & Atsan,
2006). According to Markman & Baron (2003), “the closer the match between the
individual’s characteristics and the characteristic requirements of being an entrepreneur,
the more successful the individual will be.” In this review, it has discussed factors related
to personality characteristics of active owners and managers.
The Big Five factors (Barrick & Mount, 1991; Hurtz & Donovan, 2000; Johnson, 1990)
“Extraversion, Emotional Stability, Agreeableness, Conscientiousness and Openness to
experience are generally agreed among some personality theorists as representative
personality traits or characteristics” (Judge, Higgins, Thoresen & Barrick, 1999; Mount
& Barrick, 1998).
Entrepreneurs’ personality traits have been considered for long as the main factors
determining the growth (performance) of firms (Robinson & Sexton, 1994). Several
studies found that “personality attributes including the need for success, locus of control,
and propensity for risk-taking have often been associated with successful
entrepreneurship” (Begley & Boyd, 1987; McClelland, 1987; Miner, 1996; Brandstaetter,
55
1997). In his study, Kiggundu (2002) found that “personality characteristics have a direct
influence on the growth of African firms.” However, although providing some useful
insights, “these studies, when replicated, often produce conflicting findings”
(Duchesneau & Gartner, 1990; Baum, 1995). As a result, “personality characteristics
have been criticized both on the theoretical and empirical ground in the studies of
entrepreneurship” (Kiggundu, 2002).
Need for achievement:
Unlike the easily satisfied individuals, entrepreneurs who have a higher degree of need
for success tend to exert much effort on tasks that presumed help them fulfil ing their
goals and needs. (McClelland, 1965) cited in Zhou, de Wit, (2009). Based on a review of
23 studies, Johnson (1990) concludes that “there is a positive relationship between need
for achievement and entrepreneurial activity”. Confirming this conclusion, a study by
Lau and Busenitz (2001) found “a strong positive relationship between the need for
achievement and the ambition to grow the firm.” Hence, we can suggest in this study that
there might be “a positive relationship between need for achievement and firm growth.”
Risk-taking propensity:
The personal trait, Risk-taking propensity is one of the important characteristics of an

entrepreneurship business (Brockhaus, 1982; Zhou, de Wit, 2009). However, not all
researchers did agree due to the unanimity of the results on this notion (Hull et al., 1980;
Timmons et al., 1985). Risk-taking was “the earliest identified characteristic of
entrepreneurship,” as suggested by Cantillon (1755). An entrepreneur can be considered
as a risk-taking person “if he/she follows opportunities, faces uncertainties, and takes
risks” (Venkataraman, 1997) cited in Zhou, de Wit, (2009).
The tendency of an entrepreneur face risk holds “all factors dealing with risk, including
taking calculated risks, being realistic when analysing opportunities, and spreading one’s
risk. All these are said to be key factors that impact positively on entrepreneurship”
(Hisrich & Peters, 2002; Stewart et al., 2003; Timmons & Spinelli, 2004; Gurol & Atsan,
2006). It has been indicated also that owners of recently established firms who are not
risk-averse are more likely to take ambitious tasks without fear to grow their firms
56
(Casser, 2007; Bager & Schøtt, 2004 cited in Zhou, de Wit, (2009). Thus, we propose a
positive impact of risk-taking propensity attributes of owners/managers on the growth of
our target firms in Ethiopia.
Locus of control:
Locus of control, a concept is taken from a “social theory” developed by Rotter (1966),
refers to “the degree to which an individual perceives the outcome of an event to be either
within or beyond his or her control” (Morris & Zahra, 2000). Locus of control according
to (Shane, Locke, & Collins 2003) is “the belief of an individual to what extent their
actions or personal characteristics affect outcomes.” For instance, “individuals with an
external locus of control believe that the outcome of an event is out of their control”
(Shane et al., 2003). On the other hand, “people with an internal locus of control, who
perceive the events within their control, believe in themselves to be in control of their
destiny.” (Rauch & Frese, 2000; Mueller & Thomas, 2001).
“One of the characteristics consistently found in successful entrepreneurs is the tendency

for the entrepreneur to have an internal locus of control” (Mueller & Thomas, 2001; Gurol
& Atsan, 2006). In an empirical study of 97 firms, Miller & Toulouse (1986) observed a
“significant positive relationship between internal locus of control and the performance
of the firm, which nevertheless varies in function of environmental variables.” Kalleberg
& Leicht (1991), however, found no relationship between the growth of firms an internal
locus of control. As a comprehensive study, internal and external locus of control has
been included as part of the data required for further investigation and commotion of the
prior results in different business environment setting.
Self-efficacy:
Self-efficacy can be defined as an individual capability to gather and implement the

necessary personal resources, skills, and competencies so that priorly set goals have got
achieved. (Bandura, 1997). Shane et al., (2003) contend that “an individual with high
self-efficacy for a given task will put more effort and time into it, make better plans and
strategies, self-evaluate and modify goals for the successful accomplishment their goals”
from their investigation, Shane et al., (2003) argue that “self-efficacy has proved to be a
57
robust predictor of an individual’s performance for a specific task.” For its characteristics
including “goal orientation and openness,” self-efficiency has been part of the inquiries
collected from the target population, in this study.
Extraversion:
Extraversion is mainly linked with the “quantity and intensity of building and maintaining
a relationship and requires active engagement with high energy levels, positive emotion,
and excitement” (DeNeve & Cooper, 1998). Morrison, Breen, and Ali (2003) observed
that extraversion has a strong relationship with the performance of firms. Extraversion
can be explained by the extent of sociability an owner or manager has with the social
network established around the firm. Barringer & Greening, (1998) argued that
“Entrepreneurs with strong sociability are more likely to engage in developing social
networks, ultimately resulting in stronger relationships with suppliers, customers, and
partners.” Besides, Baron and Markman (2000) claim that “the ability to establish and
develop networks with customers, suppliers and advisors is an essential skill for business
to effectively increasing the likelihood of firm goal achievement.” We can thus suggest
a positive relationship between extraversion/sociability and firm growth.
Competences & skills of the entrepreneur

Several studies suggested that “the competencies of business owners in SMEs constitute
a vital role in determining the growth of business enterprise” (Chandler & Jansen, 1992;
Bird, 1995). However, before going any further, “it is necessary to have a clear
understanding of the concept of competency.” According to Rowe’s (1995) definition
“competency is a behaviour in which performance could be achieved.”
Chandler & Jansen (1992) suggested to the researchers explore the competencies required
by entrepreneurs in managing their businesses, researchers should first understand the
roles played by entrepreneurs as owner-managers. The extant literature suggests that
entrepreneurs, principally those in small businesses, are engaged in three main roles:
“The entrepreneurial role, assisting business development programs; the managerial role,
which assists with functional aspects of their firms, including business operations,
financial issues and planning, marketing management, humans resources management,
administrative matters; and last but not least the functional or technical role, which is
58
required for functioning and producing products” (Chandler & Jansen, 1992; Ucbasaran
et al., 2004; Baum & Lock, 2004; Beaver & Jennings, 2005).
As a result, after reviewing several studies, the data collection instrument was
supplemented with factors related to entrepreneurial competencies, managerial
competences, and functional competencies.
2.5.2 Business Level Determinants

Having competent, risk-taking, efficient, and other individual qualities do not help much
in creating the growth of firms. in fact, such type of individuals creates a better business
environment which helps facilitate the performance and growth of their firms. “Firm
growth is an increase in certain attributes, such as employment, capital, sales, and profit
of a firm between two points in time” (Hakkert & Kemp, 2006). Hence, “the growth of
firms can be determined by the degree of effectiveness and capability with which firm-
specific resources such as labor, capital, and knowledge are acquired, organized, and
transformed into sell-able products and services through organizational routines,
practices, and structure” (Nelson and Winter, 1982; Nickell, 1996; Nickell, Nicolitsas, &
Dryden, 1997).
Thus, firm-level factors are presumed to have more direct impacts on firm growth.
Numerous empirical findings have identified several firm-level factors including firm
attributes; firm strategies, such as market orientation and entrepreneurial orientation;
firm-specific resources, including human capital and financial resources; organizational
structure, and dynamic capability. The coming subsection tried to briefly discuss issues
regarding these organizational determinants of firm growth.
Characteristics of Firms
The first category of firm-level determinants of firm growth deals with some basic
characteristics and other organizational capabilities. Variables, such as the firm’s size,
initial capital, age, location, sales performance, profitability are categorized under this
category. A brief discussion of these variables is presented in the following section.
Firm size
59
In the empirical firm growth literature, firm size is a commonly used characteristic of
firm attribute Dang, Li, & Yang, (2018). However, Dang, et al., (2018) could not found
research that comprehensively assesses the sensitivity of empirical results in corporate
finance to these different measures of firm size. Aiming to fill this gap, Dang, et al.,
(2018) conducted a study which has provided empirical evidence for a “measurement
effect” in the “size effect”. specifically, they tried to investigate the impact of applying
different proxies of firm size (total assets, total sales, and market capitalization). From
their study, they highlighted several empirical implications for the corporate finance
study.
“First, in most areas of corporate finance, the coefficients of firm size measures are robust
in sign and statistical significance. Second, the coefficients on repressors other than firm
size often change sign and significance level when different size measures are used.
Unfortunately, this suggests that some previous studies are not robust to different firm
size proxies. Third, the goodness of fit measured by R-squared also varies with different
size measures, suggesting that some measures are more relevant than others in different
situations. Fourth, different proxies capture different aspects of firm size and thus have
different implications in corporate finance. Therefore, the choice of size measures needs
both theoretical and empirical justification.” (Dang, et al., 2018).
As per Bigsten, & Gebreeyesus, (2007) “size of firms decreases which provides evidence
contrary to Gibrat’s law.” However, the evidence regarding the relationship between the
growth of firms and firm size in the manufacturing sector of Sub Saharan Africa (SSA)
showed a mixed result (Bigsten and So derbom 2006).
Initial Capital
Despite the strong belief among scholars (see Lee, Brown, & Schlueter, 2016) that equity
financing can play a vital role in the growth of business enterprises, only less than two
percent of those enterprises are funding their business through the capital. The empirical
evidence from the growth studies also suggests that most registered growth of firms is
more reliant on debt financing from banks rather than equity financing (Vanacker and
Manigart, 2010; Brown & Lee, 2014; Lee, Brown, & Schlueter, 2016).
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Contrary to the “starting big makes firm bigger” Kallon (1990) cited in Okpara, & Wynn,
(2007) claimed that the amount of capital required to start a business is related
significantly negative to the growth rate of businesses. He also portrayed that access to
commercial credit did not contribute to entrepreneurial success in any significant way,
and, if it did, the relationship would be negative”. on the contrary, a study conducted in
Ethiopia by Bigsten, & Gebreeyesus, (2007) contends that capital intensity has a positive
relationship with the growth rate of firms. They found that firms stated with relatively
larger capital grow faster than those with lower capital.
Hence, based on the recommendation from Dang, et al., (2018), this study has used initial
capital and initial employment as proxies of firm size. Firm size measured in terms of
initial capital, if it has indicated a significant correlation with the CAGR of capital was
used to estimate capital growth. On the other hand, firm size measured in terms of the
number of initial employees was used to estimate the growth model measured in terms
of employment growth (CAGR of employees). As has been stated in the conceptual
framework part of this study, CAGR was used to measure four of the growth indicators
(capital growth, sales growth, and employment growth, and profit growth.
Age of the enterprise:
The association between firm growth and firm age has been investigated from a range of
views, “in particular, industry dynamics and organizational ecology” (Nguyen et al.,
2004). However, no decisive result in the extant literature has come showing a clear
impact of firms' age on the growth of firms. The results often “yields contradictory results
depending on data and estimation methods used” (Nguyen et al., 2004).
A bulk of small firm growth studies conducted in the developed countries found that
“older firms experience less growth” (Evans, 1987; Variyam & Kraybill, 1992; Dunne &
Hughes, 1994; Heshmati, 2001). In contrast, some studies in the developed countries
found the impact of firm age is only on the survival of a firm rather than growth (Bates
& Nucci 1989).
In developing countries, on the other hand, the relationship between firm age and
performance is robust. For example, a study conducted in Morocco by Harabi (2003),
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argued that the average growth rate of firms decreases with age. “He illustrated that
younger firms grow very fast.” Similar to the other result, the relationship between
growth and firm age in Ethiopia found mixed results. Firm growth increases with age for
older firms but decreases with age for younger firms in their early stages Bigsten, &
Gebreeyesus, (2007).
Location of the enterprise
Firms may choose (Sridhar & Wan, 2010) or be forced to established and operated their
businesses in small, medium, and large cities. Dahlqvist et al. (2000) argued that the need
for a special dimension in determining firm growth has to do with visibility to customers,
access to resources (finance, skilled manpower, production or service input), access to
market, suppliers and contractors, availability of facilities, and infrastructure.
Liedholm (2002) “investigated the determinants of survival and growth of small

businesses in Africa and Latin America. The findings of his study showed that the
location of the firm was an important factor. Firms located in urban and commercial areas
were more likely to survive, during a given year than those located in rural areas. Urban
and commercial location was also associated with faster growth, in terms of the number
of employees hired in a given year.” Supporting Liedholm’s finding a study in Ethiopian
by Bigsten, & Gebreeyesus, (2007), find that “firms located in and around Addis Ababa
(the capital city of Ethiopia) grows faster than firms operating outside the city.” He
contended that “access to better infrastructure and larger markets for inputs and outputs”
are the main reasons why firms in the capital grow than their counterparts outside the
city.
Even though, the samples of this study were selected only from Addis Ababa city,
investigating the growth difference due to specific locations such as working in Merkato
(the largest market in Ethiopia) needs consideration. Considering this benefit, the data
collection tool has prepared including the location dimension.
Sales Growth and Profitability Growth
The relationship between sales growth profit growth is at the heart of most theoretical
perspectives from industrial economics and strategic management, which usually tend to
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affirm that the former drives the latter. However, these perspectives differ in their
explanations of how and why these initial superior profits are achieved and translated into
further growth” Federico, & Capelleras, (2015).
“While there is an increasing interest in the literature in the relationship between profits
and business growth, the empirical evidence is mixed and inconclusive. This can be
explained by the difficulty of fully addressing the complex nature of this relationship.
Building on resource-based and evolutionary considerations, the present study
investigates the dynamics between the growth and profits of young firms by explicitly
considering the endogeneity and heterogeneity aspects of the relationship. Data is based
on a cohort of Spanish manufacturing firms tracked during the period 1996-2010. The
results indicate that young firm growth has a positive impact on profits. In contrast, the
effect of profits on firm growth is not significant. Neither is there a significant correlation
between past and current growth. Importantly, it is found that the results are strongly
influenced by inter-firm heterogeneity.” Federico, & Capelleras, (2015). Some of firms
may decide to grow at the expense of profits, just for surviving reasons (Coad et al., 2012;
Garnsey, 1998). Thus, it could be expected that growth and profits are negatively related
as a consequence of trial-and-error initial learning processes Federico, & Capelleras,
(2015).
“A higher growth rate may lead to higher profitability through efficiency and enhancing
learning effects.” (Glancey, 1998). On the other hand, “if the firm attempts to grow at a
rate beyond that with which the entrepreneur can cope, dynamic dis-economies of scale
may set in. If growth is achieved through cutting margins in existing markets, rather than
through diversification into new markets, the relationship between growth and
profitability may also be negative.” (Glancey, 1998).
Growth on profitability
Several recent studies like (Coad, 2007, 2009; Goddard et al. 2004) cited in Mishra, Deb,
& Tokic, (2018). believes that firm growth and profitability are linked to each other. Early
theoretical studies relating firm growth and profitability justify that growth has a positive
impact on profitability (see Verdoorn, 1949 and Kaldor, 1966, empirically supported in
the works of Chandler & Jansen, 1992; Coad, 2007, 2009; Cowling, 2004, among others).
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They claim that “growth enhances productivity as the firms achieve the benefits of
economies of scale leading to higher profits.” Alchian (1950) argued that “fittest firms
grow and survive in the market and profit rates may reflect the fitness of the firm to
survive others tend to exit.” However, there are empirical findings that indicate there are
inverse relationships between profitability and firm growth (Markman Gartner, 2002;
Reid, 1995; Mishra, Deb, & Tokic, 2018).
Firm strategies
Several studies in the finance literature (Storey, 1994; Olson & Bokor, 1995; Pearce &
Robinson, 2009) claimed that strategies are crucial factors in determining the growth and
performance of firms. Strategy related factors including market orientation,
entrepreneurial orientation, aggressiveness, and pro-activeness are discussed briefly in
the coming pages.
Market Orientation
The growth of firms can be determined by the success of the firm to reach customers and
able to sell their products and services. Thus, we can consider market orientation comes
at the forefront of firm growth determinants. Market-oriented firms can follow the need
of their customers, make analyses on what should be done, and respond intact to satisfy
the need of the customers. In such a way they can satisfy their customers (Hult, Snow &
Kandemir, 2003; Narver & Slater, 1990).
Market orientation can be defined in numerous ways. Kohli and Jaworski (1990)
suggested three ways to identify market-oriented firms from others: “intelligence
generation, intelligence dissemination, and responsiveness.” empirical studies on firm
growth shows that market orientation and the growth of firms have a significant
relationship (Kohli & Jaworski, 1993).
Entrepreneurial orientation
The other strategy related factor of firm growth is the concept of entrepreneurial
orientation (EO) as stated in (Ferreira, Azevedo, & Ortiz, 2011). considering its
importance to the growth firms, several scholars (including Davidsson, 1989; Greene &
Brown, 1997; Janey & Dess, 2006), Ferreira, et al., 2011; Tirfe, 2015) suggested the
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inclusion of the EO dimension in the models of entrepreneurship and growth of firms.
They believe that including the EO dimension of growth determinant in a growth model
provides a useful framework (see Ferreira, et al., 2011) to identify firms’ propensity to
change in their growth measures due to the entrepreneurial orientation they have. Hence,
it is worth discussing how the EO construct emerged over the course years in the growth
literature.
Miller (1983), defined Entrepreneurial orientation as a “concept, holding a combination

of constructs (Risk-taking propensity, innovation, and pro-activeness)”. The measures of
EO developed by Miller (1983) put their influence in the subsequent empirical studies of
firm growth. Although researchers give this measure different interpretations of the
measuring instrument have been suggested, that does not prevent it from being a feasible
instrument to measure the important aspects of the entrepreneurial orientation (Ferreira,
Azevedo, & Ortiz, 2011). This measure has got the support of researchers (such as Covin
and Slevin, 1991 and Ferreira, Azevedo, & Ortiz, 2011) by referring that organizations,
and not only individuals, can behave entrepreneurially. They also defend the use of Risk-
taking propensity, innovativeness, and pro-activeness, as the important dimensions of
entrepreneurship. Nevertheless, they refer to this as a type of behaviour labeled as
“entrepreneurial posture”. Ferreira, Azevedo, & Ortiz, 2011)
Lumpkin & Dess, (1996, 2001) on their side further conceptualized the concept into five
dimensions. They introduced two additional dimensions to the three conceptualization of
Miller: The construct autonomy and aggressiveness. The defined autonomy as
“independent action by an individual or a team aimed at bringing forth a business concept
or vision and carrying it through to completion. Innovativeness refers to a willingness to
support creativity and experimentation in introducing new products/services and novelty,
technological leadership, and R&D in developing new processes. Risk-taking propensity
means a tendency to take bold actions such as venturing into unknown new markets,
committing a large portion of resources to ventures with uncertain outcomes, and/or
borrowing heavily to invest in a business. Pro-activeness is a forward-looking and
opportunity-seeking view. The pro-activeness perspective involves introducing new
products and or services to the market ahead of the competitors. Firms who are considered
pro-active acts to the future demand they are anticipating. Based on this view such kinds
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of firms try to create an environment that can shape and change the status to a better
position. aggressiveness reflects the intensity of a firm’s efforts to outperform industry
rivals, characterized by a combative posture and a forceful repose to the competitor’s
actions.” (Lumpkin & Dess, 1996, 2001).
Aggressiveness.
The aggressiveness dimension refers to the stance of a firm adopted in how to allocate
firm resources so that the market position of the firm compared to competitors gets
improved. In doing so the firm may use techniques such as “product innovations and/or
market development” (Miles and Cameron 1982) or “high investments to improve
relative market share and competitive position” (Venkatraman, (1989). “It also reflects
the notions of 'explosion' (i.e., improve competitive position in the short-run) as
conceptualized by Wissema et al. (1980), and the strategy of 'multiplication', i.e., increase
of market shares by multiplying as noted by Vesper (1979)
Futurity.
The very existence of firms is based on the future desire of their owners and managers.
The operation is all based on the going concern principle of accounting (Andrews 1971;
Ansoff 1975; Grant and King 1982). “This dimension reflects temporal considerations
reflected in key strategic decisions, in terms of the relative emphasis of effectiveness
(longer-term) considerations versus efficiency (shorter-term) considerations.”
(Venkatraman, 1989). For example, emphasis on basic research can be argued to have a
longer-term focus than application-oriented research programs which reflect a shorter-
term focus. This trait is manifested through more emphasis to areas such as forecasting
sales and customer preferences as well as formal tracking of environmental trends
(Venkatraman, 1989)
Pro-activeness
Pro-activeness of firms refers to an intention and behaviour of firms to engage in

“emerging industries, continuous search for market opportunities and experimentation
with potential responses to changing environmental trends” (Miles and Snow 1978). a
pro-active firm can be characterized as firms which need and plan to lead their market
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and industry ahead. Firms who having this character seeks a new opportunity to introduce
a new way of production, marketing, introducing new brand, eliminating matured and
declining operations (Venkatraman, 1989).
Innovativeness
Innovation stands at the centre of well-performing firms (Rosenbusch, Brinckmann, &

Bausch, 2011). according to Rosenbusch, et al., (2011) “the performance implications of
innovation in small and medium-sized enterprises have attracted considerable interest
among academics and practitioners.” However, empirical studies on the relationship
between growth (performance) and innovation in small and medium enterprises show
mixed results. A meta-analysis by Rosenbusch, et al., (2011) investigated several
empirical studies to find evidence “whether and especially under which circumstances
smaller, resource-scarce firms benefit from innovation.” from their meat-analysis,
Rosenbusch, et al., (2011) find that the relationship between innovation and performance
is context-dependent. Contexts including culture, age of the owner, and managers, the
type of innovation are drivers of the relation between the two variables. Accordingly, we
include the innovativeness of firms as one of the determinants of firm growth in this
study.
Riskiness
Unlike risk-taking propensity (which focusses more on individual-level behaviour of firm

owners or managers), the riskiness dimension captures the firm-level degree of business
risk. Decisions regarding the allocation of resources, choice of products, and markets are
among the areas where riskiness factor is explained (Miller and Friesen, 1984). It is
expected to be reflected in criteria for decisions such as resource allocation (Bowman
1982) and the overall pattern of decision-making (Baird and Thomas 1985).
Trust
Trust is another factor in the strategy category. The study Kumar, 1996 in his qualitative
study on the power of trust states that “trust is stronger than fear. Partners that trust each
other, generate greater profits, serve customers better, and are more adaptable to the
business environment than those who do not (Kumar, 1996). Trust is all about the
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business environment depends on. Unless we develop and secure trust around our
business not business operations will take place in confidence. The business arena is built
on trust (Kumar, 1996). Innovation can’t benefit its innovator unless employees are
trusted. Hence, it is worth maintaining trust as one factor in our study.
Firm-Specific Resources
Based on the resource-based-view, human and financial resources are important factors
in firm growth. Hence, the literature regarding human capital and financial resources is
discussed briefly as follows.
Financial Resources
For a firm to grow it is important to secure financial resources which is an easily

convertible asset to different resources (Sexton & Bowman-Upton, 1991; Bamford, Dean
& McDougall, 1997 cited in Zhou, de Wit, 2009). Having sufficient financial resources
can help firs to innovate new things which in turn lets the firm pursue new growth
opportunities (Zhou, de Wit, (2009). Empirical studies show that access to “financial
resources have a positive effect on small business growth” (Cooper et al., 1994; Storey,
1994). Actually, financial resources and financial performance are complementary
variables. Not only financial resources used to bring firm performance, but it is also the
financial performance that makes more financial resources (i.e., when profit is reinvested
it becomes a financial resource for the next operational period). We have internal and
external financial resources. “Internal funds retained by the company, if invested wisely,
are most likely add to the earnings of the company” (Baumol et al., 1970).
Coad (2007) argues that “financial performance can be expected to correspond to firm
growth given the principle of ‘growth of the fitter’ from evolutionary theory. Following
this logic, only firms with superior financial performance can grow.” However, the
empirical evidence on this phenomenon remains non-decisive. While some studies show
a significantly positive relationship between financial performance and growth (Bottazzi
& Secchi, 2005), others find only moderate effects (Coad, 2007) and even some negative
effects (Hardwick & Adams, 2002). “The rationale behind this is that there are a large
number of unexplained variations in the growth rate” (Coad, 2007). In this study, both
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internal and external financial sources of firms in Ethiopia have been used in building the
data collection instrument.
Human capital
The human capital for firms is a source of skills, knowledge, and experience. “On an
organizational level, the human capital of the total workforce plays a more determining
role when compared to the entrepreneur alone” (Birley & Westhead, 1990; Chandler &
Hanks, 1994). Human resource is considered as the most important resource of the firm.
Because an individual’s skill experience and knowledge play a vital role in building a
competitive advantage to the business organizations. Small firms are more likely to
engage in innovation activities due to their constraints in available resources, and
therefore high-quality workforce and further human resource development within the
organization are rather important for such firms. Rauch, Frese, and Utsch (2005)
conducted an empirical study based on German firms and concluded that “human
resources is the most important factor predicting growth of SMEs.”
Organizational structure
Having skilled and experience human resource merely could not help unless the
organization devise a business structure which accommodates the available human
resource (Mintzberg, 1979; Zhou, de Wit, (2009). although different dimensions are used
by various researchers to describe the distribution of tasks, “centralization, formalization,
and departmentalization are common dimensions” Zhou, de Wit, 2009). Centralization
represents the degree to which authorities of decision making are delegated throughout
an organization; it is the opposite of decentralization (Aiken & Hage, 1968).
“Formalization refers to the extent to which organizational rules, procedures, authority
relationship, communication, and norms are defined (Hall, Haas & Johnson, 1967).
Formalization along with standardization and coordination are utilized to control and
optimize organizational procedures. Departmentalization is normally measured by the
number of departments involved in organizational activities or by the number of
managerial levels” (Kohli & Jaworski, 1993 cited in Zhou, de Wit, (2009). This study
adopted these organization structure related variables to capture their impact on the
growth of firm growth.
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Dynamic capability
Due to constraints in resources, business organizations have to “reconfigure, reallocate,
and recombine their resources to achieve desired goals. The firm’s ability to do this is
referred to as dynamic capability” (Eisenhardt & Martin, 2000; Teece, Pisano & Shuen,
1997). Dynamic capability can be defined as “strategic routines (for example, R&D and
new product development) and “strategic decision making (for example, entering into a
new market) which aims at achieving new resource combinations to yield firm growth”
(Eisenhardt and Martin, 2000). Several studies claim that variables in the dynamic
capability are important to find and utilize new opportunities that help the firm to perform
better (Zahra, Sapienza & Davidsson, 2006). We adopted our study variables which help
to see how organizational learning and scalability issues of dynamic capability have
impacted the growth of firms in Ethiopia.
2.5.3 External Dimension

External factors have been found to have an impact on the growth of business enterprises.
“Organizational Ecology,” introduced by Hannan & Freeman (1977), argued that
“organizations are affected by several external factors in the environment they operate.”
Dess & Beard, (1984) identified external dimension variables including heterogeneity,
dynamism, hostility, and munificence. Numerous others have recognized the effect of
these environmental factors on the growth of firms. Even-though it was substantial,
findings related to these variables show the existence of relations with the growth of
business enterprises (Davidsson et al., 2005). Several studies (Jovanovich, 1982 Cited in
Sefiani 2013; Carroll & Hannan, 2000; Delmar & Davidsson, 2001), showed that “rapidly
growing firms are more often found in industries and regions that are more dynamic.”
Dahlqvist et al. (2000) pointed out that “external factors present opportunities, threats,
and information with the potential to affect all entrepreneurs within their environment,
regardless of their background, education or business concept.” Firms able to exploit such
environmental opportunities, and able to avoid environmental threats are expected to
grow more than the firms which can not achieve this. External factors according to
Guzman & Santos (2001), include listed external factors “socio-demographics, markets
(local, international, emerging and established markets), cultural, economic, political,
institutional, legal, productive, technological, infrastructure and other physical factors of
70
that particular environment.” To see how the competitive environment of the firms is
affecting their growth, there needs to see the relationship between these external factors
and the growth of the firms. Hence, we adopt different environment-related factors in this
study.
Macro-environmental factors
Simpson et al. (2004) and Hunger & Wheelen (2000) described “macro-environment
factors” as “general forces, those that do not directly touch the short-run decisions or
short-run activities of the organization but those can, and often do, influence its long-run
decisions.” These more general forces include “economic forces that regulate the
exchange of materials, money, energy, and information; technological forces that
generate problem-solving inventions; political-legal forces that allocate power and
provide protection, laws, and regulations; and socio-cultural forces that regulate the
values, mores, and custom of society” (Hunger & Wheelen, 2000). In this study macro-
environmental factors including, exchange rate, price fluctuation, political and legal
factors, government rules and regulations, government support, the existence of
corruption, and taxation have been adopted to find their relationship with the growth of
firms in Ethiopia.
Technological factors
“Technological factors can affect all aspects of a business, from its overall strategic
position to how it manages marketing, design, production, and distribution (Boddy,
2002). The technological factors considered in this study are access to information
(Swierczek & Ha, 2003), access to infrastructure (Nabli 2007), access to technology
(CThomas et al., 2004).
Socio-cultural factors
Several researchers in the field of growth of firms have focussed on the importance of
the “socio-cultural environment and background of the people in the development of
entrepreneurship as well as in small business development” (Dosoglu-Guner, 2001; Fogli
& Fernández, 2009; Halkos & Tzeremes, 2011). Several studies argued that socio-
cultural factors including social-network have a significance impact on the performance
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of firms (Wasilczuk, 2000; Boddy, 2002; Gurol & Atsan, 2006). The socio-cultural factor
considered in this review is access to networking.
Micro-environmental factors
Micro-environmental factors are factors that affect the organization's immediate area of
operations which determines the performance and decision-making freedom (Hung et al.,
2011). “These factors include competitors, customers, distribution channels, suppliers,
and the general public” (Hung et al., 2011). Generally, deficiencies in internal micro-
environment are the major causes of small business failures. It is perceived that the major
causes of these failures are mainly due to the lack of managerial skills, good leadership
skills, and financial knowledge (Hung et al., 2011). Thus, our study considered these
variables (customer, supplier, and competitors related factors) in determining the data
collection instrument so that we can have a comprehensive growth model.
2.5.4 Other Control Factors

Zhou & de Wit, (2009) in their research identified a bunch of factors affecting the growth
of firms. Some of the factors identified by authors combined with other control dummies
are discussed in this section.
1) Sector dummies
Sector dummies are among the usually used control variable in the study of firm growth.
It has been proved that sector differences do matter in the empirical results. For instance,
“a firm in the labor-intensive sector might be more likely to engage in employment
growth when compared to the less labor-intensive one” Zhou & de Wit, (2009). Before
deciding the dummy variables for the model, this study verified a large number of
categorical variables in the severity analysis.
2) Merger Experience
Firm growth might include organic and inorganic growth. Including inorganic growth
such as growth due to merger leads to a biased conclusion to the growth study. For
researchers to avoid such biased results, Davidsson, Delmar, & Wiklund, (2006)
suggested that researchers should control the growth of firms attribuTable to in organic
ways (mergers and acquisitions) from their growth models. This suggestion is based on
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the new economic activity perspective, arguing that “organic firm growth is much more
likely to satisfy the criteria for qualifying as organization growth.” (Davidsson, et al.,
2006)
2.5.5 Challenges of Firm Growth

The Institute of Certified Public Accountants in Ireland (2015), have investigated the rank
of business barriers to SMEs in Ireland. As a part of making this study more
comprehensive, the researcher tried to include all the barriers in determining the growth
of firms in Ethiopia. A list of the challenges discussed in the extant literature, as well as
some other lists for known business data bases (like world bank country data), identified
and inculcated in developing the research questionnaire.
Getahun, M., (2016). tried to investigate challenges that affect the growth of small-scale
firms in Addis Ababa city. His investigation was focused on four dimensions of business
challenges. infrastructure-related challenges in the small type firms in Ethiopia.
Specifically, he has categorized them, as challenges relating to 1) infrastructural factors,
2) Capital requirement and seed capital-related factors, 3) managerial skill-related
factors, and 4) Government and political economic-related factors
Infrastructure Related: Regarding enabling environment, the researcher (Getahun,

2016) included in his questionnaire infrastructure-related issues including “electricity,
road, insufficient and, water supply, lack of business to compete with, development
services, lack of sufficient and quick transportation service, lack of adequate waste
removal service and sewerage system.”
Resource and Capital Related Factors: The researcher tried to investigate constraints
related to working premises, raw materials, availability of business information, the high
price of raw materials, bottleneck due to government regulation, skills labor, demand and
market-related issues, the sufficiency of capital, and availability of credit facilities
(Getahun, 2016)
Management Skills Related Factors: Deficiencies concerning managerial skill have

also got attention in the study by (Getahun, 2016). Having job specification and division
works, the efficiency of organization and effectiveness of communication, participating
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and in a good business association, getting experienced, trained and skilled employees,
access for close training facilities, skill in planning, and devising a strategy for the
business.
Government and Political Related Factors: Whatever the effect size might be, it is
apparent that government-related factors will posit positive, negative, or no effect on the
growth of firms. Supporting the view (Getahun, 2016), asked his respond to respond on
the following politics and government-related factors: accessibility of information on
government regulations, level of political intervention in business matters, the
reasonableness of the tax payment, availability of government support, simplicity of
government bureaucracies regarding government services such as business registration
and licensing.
Getahun, M., (2016) identified in his descriptive study identified major challenges facing
firms specifically small firms operating in Ethiopia. According to Getahun, the operators
of small scale firms in the country have ranked the challenges based on the intensity of
the problems they are posing on their business activities. Based on the analysis,
“Insufficient credit assistance, getting skilled labor force, deficient infrastructure,
inadequate managerial skill, multiple tax and imposition by regional and federal
governments, shortage of access for technology advancement, the inconsistency of
policies and complicated government bureaucracies, marketing-related challenges, and
political instability and legal related factors” Getahun, M., (2016) were identified as the
major challenges of business growth in the country.
Similarly, Amentie, Negash, & Kumera, (2016) investigated a ranking base of business
constraints in selected industrial centres of Ethiopia. The objective was to determine the
challenges of medium and small firms’ growth. From the rank based study, they found
that most of the challenges asked were perceived major barriers as ranked by the
respondents. From the study by Amentie, et al., (2016) “strong competition in the
markets, high level of interest-rates on loans, poor infrastructure, speed of debt payment
by customers, unavailability of an appropriate property, state of the country’s economy,
low market demand for firms’ products/service, pricing of competitor products, in the
availability of raw materials, the attitude of banks and low availability of finance from
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lenders” were ranked as higher barriers for the growth of small and medium business in
Ethiopia. Especially, strong competition in the markets, high level of interest-rates on
loans, and poor infrastructure were ranked as the highest barriers of medium and small
firms’ growth in the study areas.
In their investigation about challenges facing small business in one of the Ethiopian zones
(Gedeo Zone), Kibret, Rokandla, Lalisho, & Belayneh, (2015), found that “higher tax
rate, inefficient tax administration, prices of inputs, bureaucratic government
requirements, shortage of raw materials, inadequate skills of employees, higher interest-
rate and a higher collateral requirement for getting a loan are the major constrains
encountering small firms to grow.”
Okpara, & Wynn, (2007) in their empirical study attempted to analyse the factors that
affect the growth of business enterprises in Nigeria. Their focus was on the constraints of
business growth. Their finding listed many challenges including “lack of financial
support, lack of management experience, corruption, lack of infrastructure, lack of
training, and inadequate bookkeeping and record-keeping.”
Corruption: Fisman, & Svensson, (2007) conducted a correlation-based study on

Ugandan selected firms and found that corruption has a negative correlation with the
growth of firms in the country. In their study, they indicated that bribery has a more
negative relation than taxation. “A one-percentage-point increase in the bribery rate is
associated with a reduction in firm growth of three percentage points, an effect that is
about three times greater than that of taxation. This finding supports the notion that
corruption draws the growth of firms. because the corruption spent is recovered with
subsequent low taxation. Hence, we proposed that: Corruption experience of firms has a
positive impact on the growth of firms.
Taxation: “Fisman, & Svensson, (2007) conducted a correlation-based study on

Ugandan selected firms and found that taxation has a negative correlation with the growth
of firms in the country. However, firms able to evade the tax payment can accumulate
resources which can help them reinvest in generating additional revenue than those they
do not evade tax payments. Nevertheless, availability of large-scale tax evasion in a
country leads to a reduction of government service to those firms due to its negative
75
effects on the entire economy, ultimately which might impact the growth of these tax
breaching firms (Cerqueti & Coppier, 2011)
A study conducted by Lee, Brown, & Schlueter, (2016) stated firms which have identified
the six main challenges that most firms encountered during their growth process.
Recruitment retention of staff, shortages of skills labor, obtaining adequate finance,
maintaining sufficient cash flow, lack of skilled management, and finding suitable
premises to accommodate growth.
Essays, UK. (November 2018). The major findings of the research relating to challenges
of business enabling environment (BEE) in Addis Ababa as well as Ethiopia are
unregulated computation, tax administration, electricity supply, renewing a business
license, corruption, access to land and construction permit, access to finance, cost and
availability of shops stores and offices, telecommunication service, frequent change in
business laws and regulations.
All the above four studies have focussed on collecting perceived challenges which are
presumed drawing back the growth of firms; not on the effect of those obstacles on the
growth measures. This is one of the gaps in the extant firm growth literature that needs
investigation. Thus, what an effect these barriers could have on the growth of firms need
to be investigated further using path analysis. Hence this study took 28 barriers which are
presumed to exhaustively and comprehensively represent most challenges faced by the
firms in their lifetime. As a result, this study tried to further the effect part of the
challenges if any beyond identifying and ranking their perceived level of barrier-ability
in the growth of the business enterprises.
2.6 A meta-Analysis of Ethiopian Firm Growth Studies
2.6.1 Introduction
The main objective of this review was to investigate the major focus of firm growth
studies in Ethiopia by investigating Ethiopian firm growth studies over extended years.
Generally, this review tries to evaluate firm growth studies in Ethiopia from their growth
measures perspective, from their size focus, and the sample area mostly got coverage by
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those studies. Therefore, this part of the thesis focusses on answering the following
objectives.
 To investigate the focus area of Ethiopian firm growth measurement

 To identify the size, sector and geographical area of Ethiopian firm growth studies
and firms
 To identify if any existing gap in Ethiopian firm growth for empirical research
2.6.2 Methodology
We have reviewed 102 firm growth studies from 20 years’ literature on Ethiopian
business growth researches. To include a study in our analysis, we have used some
selection criteria. The main criteria finding the journal articles from at least scholastic
research databases like google scholar, EBESCC, ELSEVIER, WILLEY, JSTOR. Some
words and phrases presumed most used in the business growth literature were also used
in the searching stage of the review. The phrases were: firm growth in Ethiopia,
Entrepreneurship growth in Ethiopia, business growth in Ethiopian, and Enterprise
growth in Ethiopia, organization growth in Ethiopia. And the search going until no more
studies regarding Ethiopian firms’ growth were extracted from the research databases.
2.6.3 Results
The result from the extensive search emerged with 102 articles in 20 years’ study years.
Above most of the journal articles were collected from google scholar. Only a few of the
were retrieved from the other reputable journals. Nonetheless, since the objective to
examine how a firm growth study in Ethiopia is going, any journal article concerning
Ethiopia and its constituent parts, focusing on the growth terminologies and phrases taken
from the literature were included in the review.
The result from a systematic study of firm Ethiopian Entrepreneurial growth studies
shows that firm grow study in the country starts since 1998. That is when Mengistae,
(1998) researched the effect of age and size on firm growth and productive efficiency.
Except for Mengistae’s panel data-based study, no published firm growth study, before
the year 2000 (see figure 1) found in the databases of ELSEVIER, JSTOR, EBESCO,
Springe, and Google scholar journals. From the year 2001 up to 2012, there are 32
entrepreneurial growth studies.
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Figure 2.1 Study distribution among a range of years
Source: Figure prepared in Excel from SPSS result
As we can see in figure 1, around 68 percent of entrepreneurial studies in Ethiopia have

been conducted in the early years 2013 up to 2018. this shows that researchers in Ethiopia
recently are getting extensively into the entrepreneurial growth study issue of economic
and business literature.
Table 2.1: Growth Measuring Focus of the studies
Focus of Studies Frequency Percent

Growth 25 25%
Survival 8 8%
Performance 29 28%
productivity 2 2%
Efficiency 3 3%
Others 35 34%
Total 102 100%
Source: Own calculation on SPSS
Out of the total, 102 studies around 25 percent have focussed on conventional growth
measures, like employment and sales growth. The rest are 8% on survival, 28% on
performance, 2% on productivity, 3% on efficiency and remaining on others group of
entrepreneurial issues (see Table 2)
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Figure 2.2: Study distribution over years based on Growth Measure they used
Figure 2 demonstrates the focus of entrepreneurial researchers in Ethiopian over 20 years

starting little before the year 1998 until the current studies in 2018. The front sidebar
graph with three columns (green columns) represents studies that mainly focus on firm-
level growth of the business. Whereas the backside of the bar graph represents studies
that have a focus on other entrepreneurial growth matters like performance and
productivity (at micro firm-level or macro country level).
Accordingly, the focus of the first firm growth study in Ethiopia made in 1998 analysing
panel data of manufacturing firms, focusing on performance measurement. In the years
starting from 2001 through 2012, out of 32 studies, only 3 have focused on growth while
the majority of 29 studies have focussed on other growth issues such as survival,
performance, efficiency, productivity, and other measures other than the most used
growth measures. The result of the review from the journal articles of early years, starting
from 2013 to 2018 shows that there are 22 and 47 entrepreneurial studies published
focussing growth measures and other group measures respectively.
Figure 3 demonstrates about 73 out of hundred firm growth studies have been conducting
their research on Micro and Small Enterprises (MSE). While 19 percent were focusing
on Small and Medium Enterprises (SME) only 7 percent of the studies have investigated
Medium and Large Scale Enterprises (MLSE).
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This indicates that except for 7 percent the large part of entrepreneurship growth literature
in Ethiopian focused on the micro and small enterprises. The result supports the idea of
Praag and Versloot, (2007) which says “researchers focus on entrepreneurship growth
due to the argument that says ‘entrepreneurship derives economy’”.
Figure 2.3: Size focus of Firm Growth studies in Ethiopia
By comparing the firm growth studies on MLSEs with that of the same studies on MSE
and SME size of business we tried to show the focus of researchers in what form of firm
growth study they focus in. Consequently, as in figure 4 depicting Ethiopian firm growth
studies are more concentrated on non MLSEs primarily, MSEs. Out of the seven studies
focussing on MLSE size businesses, only one study has focussed on growth rather than
other growth-related (efficiency, productivity, performance….) studies.
The other major part of the studies (95 out of 102) were conducted on non-MLSE. Of
these, only 24 (see figure 4) have shown their interest in the growth of the firms.
Generally large (77 out of 102) portion of firm growth studies in Ethiopia focused on
non-growth aspects of connoisseurship growth studies.
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Figure 2.4: Study distribution based on the focus of growth and firm size
Source: Table from SPSS Bar Graph from Excel
we have also tried to investigate Ethiopian entrepreneurial growth studies based on their
focus on sectors. The result demonstrated in figure 5 depicts that 76 percent of the studies
have concentrated on manufacturing, 3 percent on merchandising, 7 percent on the
financial institution and the remaining 14 percent have focussed either on other groups
of sectors or not specified.
Figure 2.5: Sector distribution of Studies
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As can be seen in Table 2, this review tried to look into the geographical coverage of the
firm growth studies in Ethiopia.
Table 2.2: Geographical coverage of the studies
Geographical Scope Frequency Percent

Ethiopian 15 15%
Addis Ababa 13 13%
Others cities and towns 74 73%
Total 102 100%
Source: Own Calculation in SPSS
The result shows that 15 percent of the studies cover country-wise areas. Out of 102
studies in Ethiopia, 13 percent have targeted the capital city (Addis Ababa), while the
majority 74 percent have focussed on the regional and district level cities and towns of
the country. This indicates that little attention is given for firms’ growth studies in Addis
Ababa which hosts more than forty percent of Ethiopian business in number and more
than seventy percent in value.
Selecting eleven articles, presumed more comprehensive than the other 102 articles, we
have tried also to compliment the review with a bit more detailed issues regarding the
firm growth studies in Ethiopia. As can be seen in Table 3 the review is demonstrated by
the author, objectives investigated, the methodology used, findings come up, gaps
emerged from. the result from this additional review supports the result from the main
review above. Accordingly, the review demonstrates the gap in the growth literature of
Ethiopian entrepreneurial studies.
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Table 2.3: Review of related literature
Author Objective Methodology Finding Limitation

Seyoum, To investigate factors Descriptive analysis, chi-square :(+) Trained owners, -M&L
Aragie, affecting the growth of test, and multivariate analysis : Initial Investment, -Measures apart from
& Micro and Small Being a service sector, Employment Growth.
Tadesse, Enterprises (MSEs) in non-cooperative affect employment -Only descriptive
(2016) Addis Ababa bole sub- growth -limited area (bole sub-city)
city
Bigsten, examines the panel data on Ethiopian -Size -Measures apart from
& relationships between manufacturing firms analysed - age Employment Growth.
Gebreeye firm growth and firm using regression +Labor productivity -Personal trains behavioural
sus, size, age, and labor -Employment change variable
(2007). productivity, Ethiopia -social aspects
Garoma, determinants of success Comparison: Quantile regression Employment & +location, Service -Medium & large,
& Dijk, in small and micro Vs OLS regressions. To estimate sector, social network -other growth measures
(2015) businesses, -Addis Profits growth Profit growth -Profit growth is a predictor
Ababa (+) location, Sector, social network, itself
Risk-taking propensity, Entrepreneurial
orientation, Size
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Lemi, & Significance of exports World Bank Enterprise Surveys, Ehio&Keney -it studied efficiency firm not
Wright, and foreign ownership Ethiopia (2006 and 2011) and (+) Exporting, foreign ownership, the firm Growth
(2015) in influencing firm-level Kenya (2007 and 2013), -Cobb- experience of managers, for Ethiopia No social and behavioural
efficiency Douglas production function using &Kenya aspects touched
Stochastic Frontier Analysis Kenyan (-) being Smaller firms, Having
comparative temporary employee for a long time,
innovation
Ethiopian (-) experience of managers
Nega, & Identify the -Primary data using systematic (-) Tax rate, incentives, finance, firm age -Only 14 self-reported items
Desta, determinants of random sampling (+) interest-rate, infrastructure, used
(2014). domestic private -Ordinary Least Square (OLS) economic condition, and market access Limited area (Mekele City)
investment growth regression model (-) firm size & market access (+) -Sectors specific conditions
(Capital & employment- economic condition growth in terms of not controlled
growth) in Mekelle City. capital size.
Edjigu, Investigate determinants panel data (2000-2008), with Small & young firms grow more rapidly -Service sector
(2016). of growth & technical system GMM to address (+-) Leverage ratio & cash flow - Social and Behavioural
efficiency of Ethiopian endogeneity issues utilized -Internal finance (+) smaller firms, aspects
manufacturing firms -leverage (borrowing) (-) large firms.
focusing on the impact -Firm’s asset, labor quality, ownership
of finance & size and legal status (+)
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Tarfasa, To identify determinants -survey of 300 firm-level data from (+) manager age, Sector (construction -Medium & large
Ferede, of growth and Addis Ababa manufacturing), -Social and behavioural
Kebebe, investment, and -Ordinary Least Square (OLS) Location (Yeka sub-city), number of issues
& Innovation in Micro & skilled workers, - Several Environment and
Behailu, Small Enterprises -no competition from unregistered firm-level variable
(2016) businesses),
-owned by association)
(-) manager education, age of the firm,
Start-up Size, power outage, access to
finance,
Abay, Examining semi-structured questionnaire of (+) Gender Male, Completing high - Large Firms Business,
Temanu owner/operator Related 160 random MSEs from Shire school have a positive effect on MSE - External Factors
& factors affecting the Indasselassie -Binary logistic growth - small town
Gebreegz growth of MSEs model - Only four items as factors
iabher,(2
015)
Abay, Investigate external semi-structured questionnaire of (+) access to formal financial sources, - Large Business,
Temanu factors affecting the 160 random MSEs from Shire infrastructure, working premise, - External Factors
& growth of MSEs Indasselassie -Binary logistic (-) access to credit - small town
Gebreegz model - Only four items as factors
85
iabher,(2
014)
Tefera, Investigate determinants Survey of random 178 MSEs from +Gender male more grow -Large firms
Gebremi MSEs growth Mekelle city the initial investment, location, and -Mekele area
chael, & -Binary choice logit model tested 4 sector have (+) employment growth
Abera, hypotheses against
(2013) employment size change since
start-up
Garoma, Success factors of A sample of 286 micro-enterprises *effect of factors varies on the type of -Not Touching Small,
& Van Microenterprise in the from Addis Ababa interviewed two success indicator used. Medium and Large
Dijk, Addis Ababa’s Urban times within 28 months. Employment growth (+) internal locus Enterprises
(2015, Informal Sector: A A quintile regression result of control, Technical and managerial -Only Informal Sector: not
Novemb Multidimensional compared with OLS regressions. training, touching the formal sectors
er) (p Analysis location, sector/activity, social which have their specificities
190) networks. Demographic (Gurage & (costs of legality and taxes).
Tigray, male, migrated, experienced) Used most exhaustive
(-) EO, Self-efficacy, variables of the Ethiopian
Profit Growth: (+) Risk-taking studies, except for
propensity, location, sector, EO===> ===>Market orientation,
social network size, (-) EO Trust,
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Growth measures: not
Entrepreneurial perspective
Source: Researcher
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2.6.4 Conclusion and Recommendation of the Meta Analysis
Generally, the review of Ethiopian Entrepreneurial studies tried to analyse about
five area discussion. Firstly, it tried to see how firm growth studies have been
emerging over the last 20 years. The result shows that starting in 1998, the study
of entrepreneurial growth is growing at a growing rate. This indicates the research
area is getting growing interest among researchers from time to time.
Secondly, this review analysed the focus area of the researches. Accordingly,
most of the studies have focused on non-firm-level growth measures. Rather they
concentrated on performance, survival, efficiency, conductivity, and other
macroeconomic contribution of entrepreneurship for country growth.
Thirdly, the review tried to evaluate the size focus of entrepreneurship growth
researchers in Ethiopia specifically comparing the size with the focus of the on-
growth aspect of entrepreneurship growth. As a result, above 95 percent of the
studies focus on enterprises below the size of medium enterprises of which 73
percent are a micro and small business. This show that little focus given to the
large-scale business studies (only 7 percent of the reviewed journals).
The fourth part we discussed in this study about the sector focus of the studies in
Ethiopian entrepreneurship growth studies. Consequently, the result shows that
the majority (75 percent) of studies focus in the manufacturing sector of firms in
Ethiopia. This indicates that little attention is given to other sectors like trade,
construction, and other service sectors.
Lastly, the review tried to analyse the geographical coverage of the studies. And
it’s found that most studies conducted on small districts and towns of Ethiopia
which represent a small share of the business environment. Addis Ababa, a centre
of trade in Ethiopian have got little attention from entrepreneurship growth
researchers.
Generally, even though entrepreneurship growth studies in Ethiopia are emerging
over the last 20 years increasingly, their comprehensiveness in terms of growth
measures, firms’ size, firms’ sectors, geographical scope. Hence, it could be
concluded that firm growth studies in Ethiopia are progressing in terms of
number, while it has forgotten the inclusiveness and comprehensiveness of the
firm growth studies.
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Thus, this study tried to take this gap into account and has tried to complement the
literature adding comprehensiveness and inclusiveness by including as numerous
possible variables as from the extant literature. Because rather than conducting redundant
studies only by changing geographical areas it would be better if researches conduct
comparative growth studies on different sectors and sizes of businesses. Besides, there
needs hight consideration of the different interests of stakeholders. Trying to satisfy
stakeholders in the firm growth study arena is possible when firm growth studies can give
each interested party in the area a comparable insight into the growth measures and enable
them to see different alternatives of growth with their most influencing factors. This in
turn, gives the stakeholders a more comprehensive view and wide choice for the informed
decision.
2.7Research Gap
The organizational growth becomes a centre of the entrepreneurship research among

several scholars in the field (see Collins & Porras 1994; Gundry & Welsh 2001; Kirchoff
1994; Mata 1994; Ostgaard & Birley 1995; Siegel, Siegel & MacMillan 1993; Welbourne
1997; Delmar, Davidsson, & Gartner, 2003). From the review, the researcher comes to
know that researchers have been studying determinants of firm growth for decades.
Different field of studies, such as finance, management, entrepreneurship, economics,
psychology, innovation, strategy, and network theory have contributed their share to the
existing firm growth body of knowledge.
Despite the existence of a large number of growth studies in the organizational study,
they fail to provide a more conclusive view by which decision-makers can depend their
decision on. One of the reasons behind the failure to reach a conclusive theory is that
researchers conduct their studies using different firm’s growth indicators and growth
determinants (Weinzimmer, Nystron, & Freeman 1998; Delmar, Davidsson, & Gartner,
2003).
Hence, they cannot generate a comparable body of knowledge for the stakeholders in
organizational growth. The other reason why such inconsistency occurs in the results of
firm growth studies is that researchers are using different measures of growth, different
factors of growth, and different methods of research. That is based on the researchers'
view point. For instance, “research from a psychological background focuses on the
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behavioural aspect of entrepreneur; research from a strategic point of view concentrates
on the relationship between environment, business strategy and growth; while studies
from economics solely focuses on the relation between growth and firm size” (Gupta et
al. 2013).
These conflicting views about the very nature of firm growth have contributed to the
variation in the findings. Some claim that firm growth is not deterministic; rather it is a
result of a random phenomenon. While a large number of other researchers believe it is
a result of a well-planned course of actions and the impact of several internal and external
factors. Even within the supporters of the deterministic view, they come up with mixed
and paradoxical results. When one factor in a particular study affected the growth of
business positively, the same variable shows a negative effect on the growth of the firms
in another study. A particular variable shows a significant contribution to firm growth in
specific geographical and cultural locations, while the same variable shows the negligible
result in a different environment. Even though the study is conducted in a similar business
environment, in the same conditions, in the identical location, and with the same target
population, the variations in results are persisting in these studies (Butler, 2002; Pearl,
2010; Derbyshire, et al 2013). This might be either due to differences in methodology,
inclusiveness of predictors in the model, and other reasons.
Idiosyncratic firm-specific attributes, geographical and locational attributes (O'Farrell, &

Hitchens, 1988) industry-specific attributes, country-specific matters, unique nature of
the individual business, are also among the rationales which initiated the researcher to
conduct this study.
In an attempt to make an integrated analysis of firm growth, Zhou, & de Wit, (2009)
classified factors into three dimensions, namely: individual, organizational, and
environmental determinants. However, they did not integrate the determinants into their
model as complete as it needs to be. Because they used employee change as growth
indicators while it is not the only alternative metric of growth. As a result, it does not
allow reviewers of their findings to see what would look like if the same predicting
variables were regressed against other growth indicators. Other studies claimed as
conducting comprehensive growth models have also made similar failures of non-
comprehensiveness and non-inclusiveness. And most of these studies have focussed on
employees as an indicator of growth, which is more preferable measure among
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policymakers rather than the main players of business activities (i.e. managers and
investors/owners) (Achtenhagen, Naldi, & Melin, 2010).
Furthermore, the mixed nature of the research finding available, about the firm growth
determinants in the existing literature was the main rationale that initiated the researcher
to study this a thesis. And generally, from the above literature review the researcher
identified about seven major causes of the variation in the result of firm growth studies
and used them to devise the new model. The variation in the impact of firm growth studies
might be:
(1) due to difference in the methodology used by the researcher; like a selection of
model which fit the particularity of a study (Butler, 2002; Pearl, 2010), or
representativeness of the sample size (Segarra, and Teruel 2012);
(2) due to perspective difference of researchers regarding what does it mean growth
to firms and what should be the appropriate measurement to gage that growth,
(most growth measures used are change in employment, asset, sales, profit)
(3) due to the particularity of the target population taken for research (such as
locational, cultural, nature-related attributes), (Audretsch, & Dohse, 2007);
(4) due to the complexity (Derbyshire & Garnsey, 2015) of the firm growth study
which hinders researchers a) epistemologically to get exhaustive data required
for proper analysis of the issue, b) dissecting the effect of a particular variable to
a particular effect, c) including confounding variables in the model specification,
and, d) separating the reversal effect of dependent independent variables;
(5) due to the imbedded problem of the existing statistical and econometric
methodology (explaining capacity of regression, statistical tests, and different
estimation techniques) (Derbyshire and Garnsey 2015);
(6) due to difference in philosophical and methodological view of the field of studies
(entrepreneurial view, economics view, finance view, psychological view, ….);
(7) due to the randomness or stochastic nature of firm growth variability (McKelvie
and Wiklund 2010; Stam, 2010).
Thus, considering these gaps, this study has tried to complement the literature by adding
up comprehensiveness and inclusiveness into its model of firm growth. The
comprehensiveness view allowed this study to include different measures of growth,
while the inclusiveness concept brought together all the plausible growth predicting
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variables into a single growth model so that all interested parties are allowed to see
comparatively result of major growth measures in such a single model. When the
fragmented factors of growth and their growth indicators are brought together, the needs
of all interested parties in the firm growth arena get fulfil ed by providing them a more
comprehensive view of firm growth and a wide choice of growth measures for their
informed decision. Hence, the main objective of this study is to show firm growth
determinants by unifying the prior firm growth works. This needs accommodating
exhaustively all plausible non-substitutive growth factors from the existing literature to
define a single comprehensive growth model which can help in furthering the current
literature a little more advanced into a new unified theory of firm growth.
2.8 Conceptual Framework
The conceptual framework of this study bases on several prior studies. Specifically, Zhou,
& de Wit, 2009 and Sefiani 2013. These studies have tried to see the firm growth
comprehensively in the way that they include more predicting variables than others.
Nevertheless, they both measure growth by a single indicator. In this part of the literature,
the researcher has tried to conceptualize the ideas in the literature and as a result, he
developed a conceptual framework which shows clearly what the dependent variables are
looking like, and how did they were computed for analysis. Besides the conceptual
framework depicts the determining variables in four main dimensions (individual-level
dimensions, Business organization level dimensions, environmental dimension, and
miscellaneous challenges of growth). Hence, helping with the result of the theoretical as
well as empirical review, this section presented the conceptual framework by
operationalizing first the dependent variables including their way of computation and
then drawing a path model comprising all the discussed predictor variables with the
alternatives of dependent variables.
2.8.1 Dependent variable

The growth firm can be measured with numerous attributes such as turnover/sales,
employment, assets, market shares, and profits. Among these measures, sales and
employment growth are in broadly used indicators of growth. This is because growth in
sales and employment reflects both short-term and long-term changes in a firm and they
are easy to obtain. Furthermore, compared to other indicators such as market shares, sales
and employment are more objective measures.
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Gupta et al. (2013), suggested that firm growth measures are better if they can be studied
considering different interests of stakeholders (entrepreneurs, investors, policy-
makers, and venture capitalists). Hence, this thesis attempts to follow a more holistic
firm growth approach. In this regard: 1) sales growth and perceived success were
used to measure the growth need of managers and entrepreneurs; 2) employment
growth to meet the need of policymakers and other interested parties; and lastly, 3)
profit and capital growth to meet the need of entrepreneurs and investors was used
as a measure of firm growth. Hence, including perceived growth which measures the
behavioural aspect of firm growth, this study used sales, capital, profit, and employment
as a measure of the growth of firms. This will help to make a comparison among growth
measures by which we can meet different stakeholders of firms.
Most new business enterprises used absolute measure of firm growth in their early
years of business. Absolute growth indicators such as an absolute change in profit,
change in sales, change in capital, and units sold are the measures widely used by
several new firms. This kind of indicators can be used as an “input into the company's
business model to estimate when the company will first break-even and when there
was enough working capital to allow further investment in hiring, developing
products, acquiring assets, and other actions necessary for survival and growth.”
Schmidt, (2016).
However, business enterprises operating for longer periods needs a more indicating
and more informative measure of growth (Schmidt, 2016). This could help decision-
makers to evaluate the growth of companies more accurately. Noting this issue
Schmidt states that growth measures, enabling evaluators compare the growth of
companies across multiple years much better indicators of healthier financial
performance and better estimators for prospects of the business arena. In support of
this view, Liedholm, and Mead, (1999), suggested that CAGR is a better method of
calculating growth. It portrays the timing of employment growth effect than growth rates
or changes in and indicator (employee, sales, capital, profit) since start-up.
Compound Annual Growth Rate (CAGR) has the power to solve the problem in absolute
growth measures. CAGR calculated by dividing the ending value of the required measure
by the starting value of thereof to the power of 1/N, where N represents the number of
periods the firm exists. Mathematically represented in formula 1 below. This metric of
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firm growth may not reflect individual year-on-year growth rates. However, CAGR is a
“generally accepted metric for average growth rates and the most useful type of growth
measure for averaging growth rates over a long time.” Farris, Bendle, Pfeifer, &
Reibstein, (2010). Hence, we have applied the compound annual growth rate in building
the growth model of this study so that our estimate would have a long term view to
the growth firms under study. The general formula for the compound annual growth
rate (CAGR) is stated in formula number………
Equation 2-1 General Equation for calculating CAGR

1
𝐹𝑉 (𝑁_𝑝𝑒𝑟𝑖𝑜𝑑𝑠)
𝐶𝐴𝐺𝑅 = ( ) −1
𝐵𝑉
FV= represents the Final value from either of the four (sales, profit, capital, and
employee) growth measures.
BV= Presumed beginning value of the four (sales, profit, capital, and employee) growth
measures.
N= number of years since establishment or prescribed year for analysis for this thesis
Due to the availability of data, the beginning employee and capital with their respective
ending values (taken from 2017/2018 data) were used to compute the CAGR of
employment and capital growth variables. in case the complete data was not reported or
document not kept, such data are easily remembered by the respondents.
Equation 2-2 CAGR of Employees of Ethiopian Manufacturing and Merchandising Firms

1
𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠17𝑒 (𝑎𝑔𝑒 𝑜𝑓 𝑓𝑖𝑟𝑚)
𝐶𝐴𝐺𝑅 𝐸𝑚𝑝𝑙𝑦𝑒𝑒𝑠 = ( ) −1
𝐵𝑒𝑔. 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠
Equation 2-3 CAGR of Capital of Ethiopian Manufacturing and Merchandising Firms

1
𝐶𝑎𝑝𝑖𝑡𝑎𝑙17𝑒 (𝑎𝑔𝑒 𝑜𝑓 𝑓𝑖𝑟𝑚)
𝐶𝐴𝐺𝑅 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = ( ) −1
𝐵𝑒𝑔. 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
However, in the case of sales and profit unless the data is available in the book of
accounts, recalling such detailed data and making available is not such an easy thing to
do. Hence, we took only three-year data sales and profit for this data analysis.
94
Equation 2-4 CAGR of Sales of Ethiopian Manufacturing and Merchandising Firms
1
𝑆𝑎𝑙𝑒𝑠17𝑒 (3 𝑦𝑒𝑎𝑟)
𝐶𝐴𝐺𝑅 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 = ( ) −1
𝑆𝑎𝑙𝑒𝑠15𝑒
Equation 2-5 CAGR of Profit of Ethiopian Manufacturing and Merchandising Firms

1
𝑃𝑟𝑜𝑓𝑖𝑡17𝑒 (3 𝑦𝑒𝑎𝑟𝑠)
𝐶𝐴𝐺𝑅 𝑜𝑓 𝑃𝑟𝑜𝑓𝑖𝑡 = ( ) −1
𝑃𝑟𝑜𝑓𝑖𝑡15𝑒
While Profit17e and Profit15e represent the profit of every business at the end of the year
2017, the 3 years indicate that the inclusion of the three data points of profit (three
businesses from 2015 to 2017) which were used to smooth the growth rate and produce
CAGR of Profit. The interpretation of all the above 17e and 15e are similar by only
substituting the appropriate growth indicator in place of profit. Hence, sales17e or 15e
means sale value made in 2017, and 2015 respectively. Capital and employment growth
are similarly represented by the 17e and 15e which have analogous representation with
the previous explanations.
As comprehensive research, another firm growth measure that focussed on the

behavioural aspect of the owners or managers was also part of the growth model in this
study. Hence, the researcher included a growth indicator termed as ‘perceived Growth’,
measuring with a five-point Likert scale. This behavioural construct was presumed to
capture the growth dimension of respondents which cannot otherwise be captured by the
other measures. In countries like Ethiopia with a large number of family firms and
experienced with plenty of manipulated financial statements for tax hiding purposes, this
indicator came to the front as an alternative of measuring growth.
The measures of the strategy developed in the form of a Likert scale by Venkatraman,
(1989) and a four-item scale developed by (López, et al., 2005) to measure the economic
and financial performance were adopted to for a new perceived firm growth construct.
Venkatraman, (1989) suggested that the interpretation of these results must be made with
the recognition that these are general patterns rather than specific patterns given certain
contextual characteristics. Hence, this construct was used as a curbing mechanism for
problems that might arise due to misstated accounts. Using financial statement items
(sales, profit, and capital) which are usually misstated, to conceal tax payment in Ethiopia
and other developing countries might cause biased conclusions of the firm growth study.
95
Thus, this alternative measure of growth could be considered as a triangulation
mechanism with the result of the study based on financial statement items.
2.8.2 Independent variable

Researchers have argued that the success of enterprises is a function of both external and
internal factors (Penrose, 1959; McCline et al., 2000; Guzman & Santos, 2001; Markman
& Baron, 2003). Furthermore, Beck & Demirguc-Kunt (2006) argued that for new SMEs
to grow, it is important to strengthen not only the internal business environment but also
the external environment. The literature on the success of SMEs usually identifies several
factors regarding the internal and external environment of the firm.
The extensive review of growth literature, the researcher attempted extracting all the
possible variables, presumed to contribute to the growth or decline of firms. These
predicting variables are presented under four main categories. Those are individual
characteristics of owners/managers, organizational level predictors, environmental level
variables, and barriers of firm growth. All those variables included in the model are
summarized in the following Table with a supposed direction of their effect on the growth
of firms indicated in five alternative measures.
Table 3.4: Determinants of growth and hypothesized relationship with growth
Category Determinants from Literature Review

Individual Dimension
Personal traits Need for achievement
Risk-taking propensity
Internal locus of control
External locus of control
Self-efficacy
Extroversion (including Sociability)
Motivation Growth motivation
Individual competencies Managerial skills
Specific skills
Personal background Individual age
Gender
Education
Experience
Business Level Dimension
Firm attributes Firm age
Firm size
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Organizational structure Centralization
Decentralization
Formalization Formalization
Standardization
Specialization (task or skills)
Departmentalization
Strategies Market orientation
Entrepreneurial orientation
Pro-activeness
Aggressiveness
Futurity
Firm specific resources Financial capital availability
Human resource development
Finance performance
Dynamic capabilities Organizational learning
Preparedness to grow
Market dynamism
Technology dynamism +
Heterogeneity +
Competitive intensity -
Munificence +
Trust +
Corruption +
Business Network
Government Related Factors
Government Services
Easiness of Regulations
GROWTH BARRIERS
Access to Market
Access to Finance
Inventory Supply
Technological change
The threat of the Informal
Sector
Political Instability
Economic turbulence
Tax environment
Regulatory Environment
Governmental services
Lack of Gov’t Support
Inflation +
Source: compiled from the literature
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2.8.3 Firm growth Model of the Study
In answering the objectives and estimating the hypothesis of this study, as stated in
the conceptual review part of this study, a multivariate analysis was utilized. Because
this study employed four criterion variables (sales growth, capital growth,
employment growth, and perceived growth) as a measure of firms’ growth and
multiple predictors variables categorized in four dimensions (individual, firm-level,
environmental, and others controls and barriers of firm growth). As discussed above,
for most of its variables and constructs, this study relies on cross-sectional data, while
there are few others collected from multiple period documents or self-reported
business data. That is why a multivariate analysis was followed in estimating how the
variation in firm growth is varying in response to variations that occurred in the
conceptually developed firm growth determinants. Generally, the model is stated as
follow:
Equation 2-6 Regression formula of the firm growth model

Growth= β1*Individual dimension + β2* Business Organizational Dimension+ β3*
External dimension + β4* Challenges of growth+ β5* Controls + ɛ
Where:
The growth represents the compound annual growth rate (CAGR) Schmidt, (2016)
of sales growth, profit growth, capital growth, and employment growth of the sample
firms. Besides, it represents also the perceived growth of owners or managers of the
sample firms measured in terms of Likert scale items.
The measures representing CAGR are the computations based on the following
formulas:
1
𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒 ( )
𝑁_𝑝𝑒𝑟𝑖𝑜𝑑𝑠
Formula 1: 𝐴𝐺𝑅 = (𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑉𝑎𝑙𝑢𝑒) −1
Based on the above formula, all of the growth measures are depicted separately as
follows.
Formula 2: Employees Growth
98
1
𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠17𝑒 (𝑎𝑔𝑒 𝑜𝑓 𝑓𝑖𝑟𝑚)
𝐶𝐴𝐺𝑅 𝐸𝑚𝑝𝑙𝑦𝑒𝑒𝑠 = ( ) −1
𝐵𝑒𝑔. 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠
Formula 3: Capital Growth
1
𝐶𝑎𝑝𝑖𝑡𝑎𝑙17𝑒 (𝑎𝑔𝑒 𝑜𝑓 𝑓𝑖𝑟𝑚)
𝐶𝐴𝐺𝑅 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = ( ) −1
𝐵𝑒𝑔. 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
However, in the case of sales and profit unless the data is available in the book of
accounts, recalling such detailed data and making available is not such an easy thing to
do. Hence, we took only three-year data sales and profit for this data analysis.
Formula 4: Sales Growth
1
𝑆𝑎𝑙𝑒𝑠17𝑒 (3 𝑦𝑒𝑎𝑟)
𝐶𝐴𝐺𝑅 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 = ( ) −1
𝑆𝑎𝑙𝑒𝑠15𝑒
Formula 5: Profit Growth
1
𝑃𝑟𝑜𝑓𝑖𝑡17𝑒 (3 𝑦𝑒𝑎𝑟𝑠)
𝐶𝐴𝐺𝑅 𝑜𝑓 𝑃𝑟𝑜𝑓𝑖𝑡 = ( ) −1
𝑃𝑟𝑜𝑓𝑖𝑡15𝑒
The individual Dimension represents personality traits, growth motivation, socio-

economic background, and competence of the entrepreneur.
Business Level Dimension represents firm attributes (firm size and firm age)
business and family orientation, finance, management-related issues,
formalization, and related others.
External Factors represent social and business networks and enabling business
environment regulatory and government-related factors, competitions,
technological factors, corruptions, economic stability, and price
Challenges of Growth
99
This section includes factors such as access to market, finance, technology and lack of
government support, supply shortage, regulatory environment, etc…
Controls represent variables that are entered into regression to partial out their effects
from the relationships of principal interests and are the stochastic error term. Control
variables used for the empirical analysis were such sector and location, merger
experience, supporters around the business, family background, and others. These are
assumed to be factors that are less likely categorized under the three dimensions
mentioned above but could have a significant bearing on achievement.
Generally, the conceptual framework is demonstrated hereunder so that it shows how the
proposed growth determinants possibly would impact the growth measures. The four
measures in the middle of the model in figure six are alternative measures of firm growth.
Whereas, the majority factors around those criterion variables are explanatory variables.
100
Figure 3.1: Conceptual Framework
101
Chapter Three
3. Research Methodology
The research approach, research design, research framework, and research methodology
of this study was developed from a comprehensive review of business literature. The gap
developed through extensive (more than 180 journal articles) review of entrepreneurial
ship researches. Hence, what approach followed, which research design selected, the
types of the methodology utilized and other related methodological issues are the main
focus of this chapter.
3.1 Research Philosophy
The common classification of theoretical philosophies in the extant literature is described

as deductive or inductive. The deductive research approach explores a known theory or
phenomenon and tests if that theory is valid in given circumstances. It has been noted that
“the deductive approach follows the path of logic most closely. The reasoning starts with
a theory and leads to a new hypothesis. This hypothesis is put to the test by confronting
it with observations that either leads to a confirmation or a rejection of the hypothesis
(Snieder, & Larner, 2013).
In the extreme form of the deductive case, the theory is an abstract, internally consistent
fantasy world that the theorist has come up with. The closest real example in the social
sciences is perhaps (basic) microeconomics, with its highly stylized firms (essentially a
cost function) and strong behavioural assumptions. Once in place, we can test whether
the theory has anything to say about the real world by deducing from the relationships
among concepts in the theory how empirical variables in the real world ought to behave
if the theory is valid Leitch, Hill, Harrison, (2010). If we fail to falsify the theory, we find
it useful and may want to act on its implications.
Locke (2007) cited in Leitch, Hill, Harrison, (2010) on the other hand argues for inductive
theory, which generalizes from repeated observations of empirical regularities.
According to him, it takes many observations over a long time in order to develop a useful
theory. Arguably, induction should result in a more realistic theory. However, if based
on observational data, the risk is that the observed reality is too complex for any
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sufficiently clear and general concepts and relationships to emerge. If instead, the theory
is to be developed through a series of experiments, well, then at least some rudimentary
theory must already have been developed from which one can deduce when the first
experiment is designed (at least “A affects B”) otherwise there would be no reason to
manipulate A and measure B in the experiment. Leitch, Hill, Harrison, (2010).
In the literature of organizational research, there are different theories concepts in the
process of theories which need further empirical evidence to be considered theories. Since
the study by Gibrat’s in the 1930s to the seminal work of Penrose 1960s, from Delmar,
Davidsson, & Gartner, 2003 to McKelvie, & Wiklund, 2010, from Segarra, and Teruel
(2012) to the most recent work of Bolarinwa, & Obembe, (2017), new variables have
emerged, new methods have been implemented, and studies have been conducted in
different geographical and cultural contexts. Nevertheless, except for suggesting a large
alternative predictor and some criterion variables the development of a solid theory of
firm growth from these studies is progressing slowly. Considering these emerging new
variables as new reality the appropriate way of finding their effect would be to test them
in a different set of business environments. This needs testing the existing suggested
variables using epistemologically the deductive way of arriving at new knowledge.
3.2 Research Approach
A quantitative research approach is an appropriate form of research approach for studies

focussing on investigating the body of knowledge which needs an empirical test using
existing proposed variables. The firm growth study in the literature follows dominantly
the quantitative research approach to verify the effect of the proposed predictor variables
on the firm growth indictors.
3.3 Research strategy

As already mentioned in the previous sections of the study, we aim to examine the impact
of the proposed firm growth determinants on the growth of firms measured in terms of
CAGR of sales, profit, capital, employee, and perceived growth. Since such kind of
testing existing theories need a quantitative data, the study used a survey research strategy
to collect the data using a list of variables verified from the literature to see their impact
on the growth of manufacturing and merchandising firms in Ethiopia. and their
relationship inclusively.
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3.4 Sampling and Data Collection
It is apparent that a well-established and designed sample determinations helped with an

appropriately selected data source and data type gives a research better quality and makes
it more dependable for the decision making. Hence, deciding on and selecting the
appropriate target unit, designing proper way sample size determination and selecting
representative and sufficient sample cases, and devising an effective way of collecting
data is the essential work of the researcher. The following section shows a possible plan
of this research regarding data and sample determination.
3.4.1 Unit of Analysis

Explaining explicitly the unit of analysis for examination was an important part of this
study. Defining a unit of analysis methodologically is considered among the most
difficult subjects in the research arena of business organizations. For instance, “a business
enterprise may continue to grow while the individual who owns and runs it may change”
Johnson, (2012 p. 64) through time due to selling of, transferring to other individuals or
any other reasons. Indeed, it may be precise because such change occurs, that a business
is able to survive and/or develop over time. Thus a particular individual may not last very
long in business, but the business in which he or she has been involved continues. In this
thesis the focus was on the business enterprises rather than on the individuals as the unit
of analysis.
Hence, the unit of analysis in this thesis were medium and large merchandising and
manufacturing enterprises in the Ethiopian capital of Addis Ababa. We select
medium and large businesses because of (1) their contribution to the growth of long-
run economic growth and job creation is higher than small firms do. Larger firms
according to Coad, (2009), “can generate jobs in large absolute numbers, and these
jobs appear to correspond to relatively stable positions”. On the other hand, as per
Coad’s, (2009) analysis, small firms mostly can create a temporary job that shortly
disappears. These temporary job opportunities according to Coad’s view are excessive
entry which did not stay long due to high exit rates of small firms and, and of large
resources. Secondly, most of the studies conducted in Ethiopia (see the result in the
meta-analysis part of this thesis) have concentrated on investigating small and micro
business enterprises; as result, there needs more investigation in the medium and
large businesses.
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Hence, this study tried to take owners and or managers of Ethiopian medium and large-
scale privately-owned manufacturing and merchandising business enterprises. The
business enterprises are firms operating in Addis Ababa (a city of 70% business in the
country). In a recent study by Guta Legesse (2018) showed that over 90 percent of high
growth firms concentrated in the capital city, Addis Ababa. Taking the unit of analysis
from such a homogeneous target group makes comparison among the firms easy due to
the control of the demand difference which might have been arisen in the case of taking
from different geographical locations.
The two sectors (merchandising and manufacturing) were selected among other sectors;
Because both manufacturing and trading services are engaged in providing goods to
customers. They both have several commonalities: for instance, they use similar inputs,
they deliver similar goods to their customers. This harmony and similarity in turn bring
about comparison easier compared to making the study conducted with other sectors.
Figure1 Real GDP Growth (Ethiopia)
Source: World Bank Group, (2015)
Besides the issue of easiness for comparison between the two sectors, the similarity of
products demanded by customers, as can be seen in figure 1 the light and dark green
illustrates that they have a significant role in the growth of the country’s GDP for the
specified years.
The other criteria for selecting our unit of analysis was to select among the private or
government-owned enterprises. In this regard, our study focussed only on privately
owned business enterprises. Excluding government-owned firms, even though they are
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participating in related business activities allowed the researcher to control the
comparison problem. Studies including government-owned firms in Ethiopia found that
publicly owned firms grow faster than privately owned firms. This might point to
differences in access to finance and other network advantages Bigsten, & Gebreeyesus,
(2007).
Besides, studying the manufacturing and merchandising business allows the researcher
to make cross-validation of parameters easy. The separate sample size was employed for
each of the two business categories so that the validation of estimators would be easy in
a way that every firm type was treated as a separate dataset.
3.4.2 Sample frame

Getting a complete list of firms with complete addresses in Ethiopia is not an easy task
as that of countries with a well-organized and documented list of firms. That is Because
there is poor documentation, incomplete address of lists, and high attrition of firms out
of the market (CSA, 2015). Noting this data availability concern into consideration, the
CSA’s 2015 Small Scale Manufacturing Industries Survey Report (SSMISR) shows that
the agency barley found reliable and adequate information on the size and area
distribution of firms in Ethiopia. Consequently, SSMISR has stated its concern on the
adequacy of getting area particulars, getting reliable size measures, and getting adequate
information on the distribution of enterprises within and among regions. This difficulty
in turn makes the difficulty the process of getting sufficient and representative sample
size and collecting adequate data for analysis (CSA, 2015).
To solve this difficulty of getting a complete sample frame for drawing a representative
and sufficient sample size, the researcher collected firms from different portals and
eventually refining those firms listed in different business directories and portals. Using
publicly available directories for data collection is one alternative recommended by
researchers (example see, Edelman, Brush, & Manolova, 2005) in such a case that there
is no available ready-made data source.
Size of Medium and large businesses selected in two ways. First, the researcher selected
firms from a list of portals hosting firms in their size category. Because some business
portals have not listed the firms by size. However, these types of firms used alternatively
the taxpayer categorization. In such a case, the researcher has selected the firms based on
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their taxpayer category as promulgated in Article 3 of the Federal Income Tax
Proclamation No. 979/2016. considering businesses in category “C” are belongs to micro
and small-scale enterprises, this study has prepared the sample frame excluding category
“C” taxpayers. Hence, the sample frame is a list of firms comprised of the only category
“A” and “B” taxpayers in such a case, and firms specifically mentioned a medium and
large business otherwise.
Category “A” taxpayer are companies generating gross annual income more than Birr
1,000,000 (which is equivalent to $32830); whereas Category “B” taxpayer being a
person, other than a Company, generating gross annual income between Birr 500,000 and
Birr 1,000,000 (which is equivalent to $16415 up to $32830). The excluded category,
Category “C” taxpayer is being a person other than a Company, having a gross annual
income of less than Birr 500,000 (which is equivalent to $32830).
The refined number of medium and large-scale firms as presented in Table 5 were the
base for calculation of the sample size for the thesis. After avoiding redundant registration
of firms in more than one directory, the number of firms resulted from the refining
process with telephone number and a relatively other address are 2661 for manufacturing
and 12,776 for merchandising. The sample size thus was determined using these two sets
of population.
Table 5: Sources of the sample

Manufactur Mercha
S.No. Source of Business Total
ing ndising
1 ADDISBIZ.com Ethiopian Business Portal 64 3803 7677
2 2Mercato.com business directory 1086 5671 6757
3 Ethiovisit.com Business directory 23 164 187
4 Ezega Business Guide 247 718 965
5 Public Procurement suppliers list 299 2420 2719
6 etyellowpages.com 189 189
7 Addis Ababa Chamber of Commerce 753 753
Total 2661 12776 15437
Source: Different business databases
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Addis Ababa which constitutes about six percent of the population in the country hosts
almost more than 40 percent of firms by number and 70 percent of firms by the value of
the business enterprises in Ethiopia. The other remaining business enterprises are spread
throughout the territories of Ethiopia. Hence, selecting a sample of firms for the study of
firm growth from this city will have more representativeness compared to taking sample
firms from other parts of the country.
3.4.3 Sample size

To meet the need for a comparison of two independent populations (the manufacturing
and merchandising) which have somehow different characteristics, contribution to the
economy and the size of the population they are belongs to, this study has calculated two
separate independent samples for each category of businesses.
In the calculation of the sample size, the researcher applied Yamane’s (1967:886)
simplified formula. This formula as demonstrated in equation 3-1 and 3-2 demonstrated
below was calculated using a 95% confidence level mostly satisfactory confidence level
in social science (see Krejcie, & Morgan, 1970), with 0.035 margins of error (e) and a
proportion (P) = .50, which is considered a conservative approach of taking proportion.
Equation 3-1 Sample size for Ethiopia Manufacturing Sector firms

N mf 2661
nmf    625
1  N mf (e ) 1  2661(.052 )
2
Equation 3-2 Sample size for Ethiopia Merchandising Sector firms

Nmr 12776
nmr    767
1  N mr (e 2 ) 1  12776(.052 )
Where: nmf and nmr is Sample size of large and medium scale manufacturing and
merchandising firms in Addis Ababa respectively;
Nmf and Nmr represent population size of large and medium manufacturing and
merchandising firms in Addis Ababa respectively;
e2 represents desired level of precision or margin of error considering 95%

confidence level, which is mostly recommended for social science studies.
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Table 6 Sample
With 0.035 Margin of error Alternative sample size

Collected Overall
Sample Planned Not in Not Valid Response
Category Sampled Collected Collected Percent Valid Cases Rate
Merchandising 767 612 155 0.8 76 536 0.7
manufacturing 625 508 117 0.81 6 502 0.8
Total 1392 1120 272 0.8 82 1038 0.75
Totally, the study initially planned to collect responses from 1392 (625manufacturing
and 767 Merchandising) medium and large business enterprises operated in Addis Ababa
Ethiopia. Nevertheless, due to the availability some invalid and some other non-response
cases, the researcher able to attain about 75 percent response rate of the total sample size
(536 i.e. 70% response rate for merchandise and 502 i.e. 80% response rate for
manufacturing which 1038 number of valid cases in total). Based on Fincham’s, (2008)
suggestion response rate more than 60 percent is considered sufficient for analysis.
Besides, Krejcie, & Morgan, (1970) commend to professionals that sample size larger
than 500 is sufficient.
As was discussed above the sample cases were drown from the business and political
centre of Ethiopia (Addis Ababa). Getting a complete view of firm growth in Addis
Ababa accordingly will give the study a big weight. because this area represents 40
percent of businesses by number and 70 percent by value in the country. Besides, the
shortcoming of comparing firms with a different market opportunity which might be
caused due to the existence of a large population and greater demand gap was controlled
by making the sample cases drawn from the same geographical area.
3.5 Data Source, and Collection Strategy
Davidsson, P., & Wiklund, J. (2006). Most studies on firm growth are based on survey
type of studies. Because it is not an easy task to get ready-made longitudinal data in the
business world. As a result, some (see Ferreira, Azevedo, & Ortiz, 2011) researchers have
got survey data as the best available alternative especially for perception-based data
109
focussing on attitudes, strategies, and resources from a large number of individual cases
(Cooper, 1995; Wiklund, 1998; Davidsson, & Wiklund, 2006).
A complete understanding of factors affecting the growth of firms requires a longitudinal

type of study. Following these suggestions, several researchers tried to develop
longitudinal models using time series firm-level data. However, due to the lack of a
complete list of firm-level data on all the presumed determinants (Davidsson, & Wiklund,
2006), studying firm growth longitudinally became unattainable. Accordingly, some
scholars suggest that it is only practical either to develop an ones-own complete list of
variables by sacrificing time-series data or using the existing panel data sets with their
deficiency. In such cases, several researchers (Venkatraman, 1989; López, Peón, &
Ordás, 2005; Sefiani, 2013; Tirfe, 2015) preferred to use the perception of managers or
owner-managers of the firms so that researchers can capture different aspects of a firm’s
growth and its determinants.
Coming to Ethiopian firms, which lack longitudinal data of similar firms, the only option
is either to collect the data from the panel data set available in the Central Statistics
Agency of Ethiopia (CSA) which did not allow to truss back data of a particular firm to
its previous years’ data, or collecting directly from recordings of individual firms. Both
of these alternatives were not good options to follow. First, due to that, the data could not
be trussed back for every individual firm. Second, holding data for a long time is not the
practice of most firms. Third, even if the firms do have data for a longer time, its
credibility falls into question due to the tax avoidance practice of most firms in Ethiopia
and the effect of this practice on the financial recordings of firms in the country. besides,
the data in CSA lacks to include a large number of behavioural variables which are
presumed among the main determinants of firm growth. Considering all these
deficiencies in the previous alternatives the researcher avoided all the options requiring
longitudinal data sources. Instead, a survey questionnaire was prepared inclusive of all
variables constituting financial, behavioural, and different other perception-based
questions. Accordingly, except for some financial and human resource data, most of the
variables were collected using a survey questionnaire distributed to the owners/managers
of the selected business organizations. Hence, the survey questionnaire was distributed
to 1392 the MLS manufacturing and merchandising enterprises in Addis Ababa city.
110
A significant part of the data was cross-sectional natured while some variables such as
financial and employment related data have been taken from two and more period data
reports. For most parts of the data, a cross-sectional data collection technique was
employed including the perception-based growth measure “perceived growth” and all of
the other independent variables. The data collection technique was conducted distributing
of a survey questionnaire mostly holding Liker’s-scale type questions with some financial
statement related items such as capital, sales, profit and Poisson natured numeric data
like number of employees. All the financial statement item and Poisson related variables
have been collected for extended number of years (i.e. panel data). Hence, the dependent
variables (capital growth, sales growth, profit growth and employment growth) have been
collected from financial reports and other documents of the companies.
Generally, in this thesis, the perception based cross-sectional data was complemented
with financial statements and figurative data reports of the businesses. That means this
study has collected two forms of data at once. This strategy made the study to achieve
the recommendations of researchers noting for the need of “longitudinal data collection”
as a better strategy for firm growth studies. By including all required factors which might
not be available in the case of panel data, this study tried to maintain the inclusiveness
and comprehensiveness of the research.
3.6 Data analysis strategy
Devising an appropriate methodology of analysis is a necessary part of any study to

achieve the research objectives and test the research hypotheses Garoma, B. F. (2012).
Accordingly, this section presents the method of data analysis used in analysing the
survey data collected during the data collection process. Hence, to estimate the
hypothesis forwarded in the conceptual review part of this study, a multivariate
analysis was utilized. Because this study employed four criterion variables (capital
growth, sales growth, employment growth, and perceived growth) as indicators of
growth of firms.
For the most part of the variables and constructs in this study, cross-sectional data
was relied-on. Regarding the three criterion variables (sales, capital, employment)
however, a panel form of data has been collected from recordings and self-reported
numerical and financial data of the target firms. In an attempt to make the study most
111
inclusive of the previous firm growth researches, this study was also emphasized using both
the direct and indirect determinants of firm growth and has tried to examine
comprehensively all the possible determinants from four dimensions: the personal
dimensions, the firm-level dimension, and the environmental dimension and growth
barriers dimension. That is why a multivariate analysis was followed in estimating how
the variation in firm growth is varying in response to variation in the conceptual firm
growth determinants.
Most questions of the determinants selected in this study were measured on five-
point Likert scale items. In addition to the Likert scale items, there were also some
continuous, categorical, and ordinary level variables. Before having the regression
model to test the hypothesis, this study passes through several stages of data clearing
and prior analysis procedures. In this part of the study, all the variables got their
attributes and identified as which variable went through which type of analysis.
Accordingly, the analysis part of this study presented the findings in four main stages.
In the first stage, the univariate analysis of descriptive statistics was conducted
describing and discussing issues related to the first objective of the study. In the first
stage of data analysis, variables related to demographic characteristics, firm
characteristics, growth, and performance measures were discussed. The percentage
and frequency distributions were the most appropriate techniques for the descriptive
type of data analysis.
In the second stage, variables were categorized into ordinary data analysis. In this
stage variables related to the challenge of business growth have been ranked and from
the ranked result, the five most rated challenges were identified for further analysis
in the comprehensive path analysis model in AMOS.
The identification process of the most rated challenges was performed using ordinary
regression of the challenges in SPSS. The total rate given to each category was
compared against the 5 point rates representing the five-point Likert type categories.
In this stage, the probability of the rate for a given challenge falls into the five rates
common for all challenges examined. Five challenges resulted from the analysis
which has rated higher one from the other were retained and used in the subsequent
112
analysis. While the rest majority were only discussed as challenges of firm growth in
Ethiopia.
There are several types of ordinal logistic regression models. Probably, the most
frequently used ordinal logistic regression model in practice according to Hosmer,
Lemeshow, & Sturdivant, (2013) is the constrained cumulative logit model (called the
proportional odds model). To rank the number of challenges based on the perceived rates
given by the respondents, this study adopted the constrained cumulative logit model,
using the PLUM function in SPSS.
In the third stage, categorical variables identified in the review part of this study have
been converted into dummy variables. All the variables converted into dummy in this
study and originally set as dummy variables were tested for correlation with the all
of the four dependent variables so that variables with significant correlation would
be retained for the regression in the path analysis stage. Testing the correlation
between categorical and continuous variables made in the cross-tab function of SPSS.
In terms of the correlation between population membership of categorical variables and
the continuous dependent variable, the ‘nominal interval’ correlation was performed in
the SPSS Cross tab function using the eta coefficient. In such kind of nominal interval
relation, proportion of the total variance (PV) known as ‘eta coefficient’ recommended
Kennedy, (1970) for nominal independent variables and interval level dependent
variables. The squared value of eta coefficient in the nominal-interval correlation have
equivalent meaning to the Pearson’s R2 in the interval level correlation analysis. This
value is termed as the ‘coefficient of determination’. Hence, the eta value and Cohen’s
‘d’ have been used in this study to prioritize categorical variables significantly correlated
with the dependent continuous variables for the regression in path analysis. Schober,
Boer, & Schwarte, 2018; Cohen 1988).
In the fourth stage of the data analysis, data preparation for the regression analysis was
performed fulfil ing the requirement for the regression. As testing items for reliability
and validity is among the main part of data preparation for analysis, tests of reliability
and different forms of validity have been executed in different tools of analysis.
As part of reliability and validity analysis factor analysis was also performed. Since the
study includes new constructs in the model, it is apparent to conduct exploratory factor
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analysis (EFA) before conducting the confirmatory analysis of items and constructs. The
procedure allowed the researcher for undertaking dimension reduction which is apparent
if there needs to estimate the path model with more efficient constructs that have passed
all the required validity and reliability tests. That is why the study preferred to conduct
both the exploratory factor analysis (EFA) and confirmatory factor analysis (CFA).
In the exploratory part of the fourth stage of this study, factors generated based on
eigenvalue from SPSS were compared against the factors generated online from the
Parallel Analysis of Patil, Singh, Mishra, and Donavan, (2017). Comparing the
eigenvalues generated in parallel analysis with eigenvalues generated from EFA, 23
factors (22 from the parallel analysis and one factor as a contingency) have been retained
for further analysis in the Confirmatory factor analysis (CFA) part of the study. Based on
the standard eigenvalue (i.e. 1), the EFA from SPSS initially showed 30 factors.
However, after comparing the eigenvalues with the parallel analysis, the optimum factors
needed for the subsequent analysis fall to 22 efficient factors. This is done by factors
above the value where the eigenvalues of parallel analysis start to diminish below the
eigenvalue generated from EFA Patil, et al., (2017). Adding up one factor as a
contingency, the study retained 23 factors comprised of 108 items.
To verify the factors for validity and reliability the analysis continued with the 23 factors.
In this stage, all the factors were feed into AMOS software for CFA. The objective of
further analysis in CFA is to verify if the factors are stick to their theoretically proposed
constructs or otherwise come-up with new constructs that need a new definition. This is
based on the statistical approach used in the study conducted by Zhou (2009) Dutch small
and medium-sized firms. In this process, factors showing low convergent validity
(loading below 0.65) were discarded from the model. This process helped the researcher
to use an efficient number of constructs in the model by avoiding factors fail to
explain what would they have been expected to explain.
Common method and specific method bias tests were also conducted to make the
study more bias-free in the analysis stage. in doing so, Harman’s single factor model
which tests a common method variance was used to identify an appropriate number of
factors for a particular model (Harman, 1976). “Common method bias (CMB) happens
when variations in responses are caused by the instrument rather than the actual
predispositions of the respondents that the instrument attempts to uncover. In other
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words, the instrument introduces a bias, hence variances, which will be analysed”.
Specific bias constructs on the other hand are just like any other multi-item constructs
but measure specific sources of bias that may account for shared variance not due to a
causal relationship between key variables in the study. A common one is Social
Desirability Bias. In social science research, social desirability bias is a type of response
bias that is the tendency of survey respondents to answer questions in a manner that will
be viewed favourably by others (Krumpal, 2014). It can take the form of over-reporting
"good behaviour" or under-reporting "bad," or undesirable behaviour. The tendency
poses a serious problem with conducting research with self-reports. This bias interferes
with the interpretation of average tendencies as well as individual differences. In this
stage, a specific bias (SB) construct was also conducted using Gaskin, & Lim’s, (2017),
a specific tool developed for the SB test. Combining the result of CMB calculated in
SPSS with the specific bias test conducted in Gaskin’s stat tool, this study tried to support
the creation of a more efficient growth model.
An Independent t-test has been also conducted to see the compare the growth rate of
merchandising firms with that of manufacturing firms. Conducting a t-test on these
indicators allowed the researcher to compare the result of these indicators with the
manufacturing and merchandising sectors.
Before conducting regression analysis in the path model of the study, correlation
analysis was conducted among the exogenous Likert’s scale type constructs
combined with the other exogenous continuous variables and the five endogenous
continuous variables. A strong correlation result registered among these dependent
and independent variables was retained for further analysis in the structural equation
model of this thesis work. Hence not all variables were put into the growth model:
strongly correlated factors to each of the five growth measures (Employment Growth,
Capital Growth, Profit Growth, Sales Growth, and Perceived Growth) were only
considered for the regression analysis in the SEM.
As mentioned above, the path model was figured out employing four main dependent
variables (sales, capital, employment, and perceived growth) and several dependent
variables. The dependent variables were collected for the process made in the
previous stages. Most of the dummy variables transformed in different stages of the
analysis didn’t show sufficient correlation. Therefore, most of those variables
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identified during the literature review have not been included in the estimation of the
path model. Nevertheless, presuming worth including them in the path analysis of
the study, about five dummy variables which showed a negligible (based on low
Cohen’s ‘d’ result) correlation values with all the dependent variables, were however
included in determining the regression model.
The regression model utilized in this study is SEM. SEM is used to estimate well-known
members of the general linear modelling (GLM) family including the t-test, ANOVA,
ANCOVA, MANOVA, MANCOVA, and the multiple regression model (Curran, 2003).
However, the SEM can be expanded to allow for the estimation of measurement error
through the use of multiple indicators latent factors, the testing of complex mediational
mechanisms through the decomposition of effects, and the testing of moderation
mechanisms through the estimation of multiple group analysis, just to name a few.
Unquestionably, SEM is a significant and indispensable tool for empirical researchers
(Curran, 2003).
The SEM was estimated based on the maximum likely hood approach found built-in
AMOS software. Using this tool of data analysis, the study in this last stage, tried to
see the moderation effect of related business experience between the business
experience and the perceived growth. Due to its low correlation result seen in the
correlation analysis, this moderation factor was not extended to the other indicators
of growth measures. Besides, sales growth was taken as a mediator between all the
predictor variables, explaining sales growth and the criterion variable, profit growth.
All the moderation and mediation propositions presumed during the
conceptualization part of this study were not found relevant in the model. That is
because they could not show a sufficient correlation coefficient required to conduct
thereof.
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Chapter Four
4. Data Analysis and Results
4.1 Introduction to Data Analysis
As was discussed above, this study collected two forms of data at once. Most parts of the
data were cross-sectional while some variables such as financial and employment-related
data have been taken from two and more periods of data reports or self-report data. All
the financial statement items and the number of employees have been collected for an
extended number of years (i.e. panel data). This part of the study shows how these
variables have been analysed during the data analysis process.
Generally, this study followed a quantitative method of analysis starting with descriptive
techniques such as frequency distribution, percentage, and analysis of variance followed
by inferential and statistical analysis. In the inferential part of this analysis, the study also
tried to emphasize both direct and indirect determinants of growth of firms and tried to
examine all the possible determinants from three dimensions; the individual, the
organization, and the external dimensions.
To show the multiplicity of the expected path model of firm growth, the multivariate
analysis was conducted using structural equation modelling as a specific technique.
Applying this model helps the researcher to see the weight of each variable influence on
the dependent variable and the reversal influence of dependent variables if any as well as
the weight taken every mediating and moderating effect of every proposed relation in the
model.
The remaining part of this chapter is presented in the following flow. First, descriptive
statistics of the socio-demographic background of the respondents; including position,
gender, experience, and educational background of respondents are presented. Secondly,
basic information about the growth of firms in the city, such as legal status, sales outlet,
industry type, and major customers of the firms are discussed. In the descriptive part of
the analysis, the financial resources of the firms are also the main part of this analysis
which demonstrates that external and internal sources of finance the firms under this
study. Discussion of expenses, losses, and financial status of the participant firms is also
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the descriptive part of this analysis. The relationship between the selected variables was
also discussed in this part. The other main part of this chapter was inferential statistics.
In this section reliability and validity tests helped by EFA and CFA are presented.
Different robustness tests of the data are also discussed in detail before presenting the
main research objective represented in the structural equation modelling part of this
chapter. Discussion and interpretations of the variables are presented side by side.
Part I
4.2 Descriptive Data Analysis
Descriptive statistics of the socio-demographic background of the respondents; including

position, gender, experience, and educational background of respondents are presented.
Secondly, basic information about the growth of firms in the city, such as legal status,
sales outlet, industry type, and major customers of the firms are discussed. In the
descriptive part of the analysis, the financial resources of the firms are also the main part
of this analysis which demonstrates that external and internal sources of finance the firms
under this study. Discussion of expenses, losses, and financial status of the participant
firms is also the descriptive part of this analysis. The relationship between the selected
variables was also discussed in this part.
4.2.1 Socio-Demographic Background

The extant literature on the need for socio-demographic characteristics in determining the
firm growth model perceived usually as a great deal (Zhou, & de Wit, 2009). Hence, this
study tried to integrate the socio-demographic characteristics of firms in Addis Ababa
into the firms’ growth model as it has discussed in the latter part of this chapter. In this
subsection variables like the position of respondents in the or target business enterprise,
gender of the owner of the enterprise, experience of the owners or managers, and some
other socio-demographic characteristics are discussed.
Position of Respondents in the Business

Despite the little works have done until his study time, Short, (1994), in his work research
put forward his concern about the omission of ownership structure from the firm growth
models. He argues missing such types of variables might have a serious impact on the
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understanding of the subject matter. Hence, he suggested further studies that investigate
the relationship between ownership and control of firms over performance thereof.
The survey questionnaire was distributed either to the managers or active owners of the
target business organizations. Most businesses in Ethiopia are family owned which
managed informally by the owners rather than the managers. In such a country with active
owners, it was preferable to collect the data from owners. However, the distribution of
the survey questionnaire shows that there are both managers and active owners (see Table
4.1) participated in the data provision process of the study. For some of the variables
required by nature to refer to financial statements and other documents, they referred the
enumerators to consult the concerned body within the departments of the target
organization.
Table 4.1 Position of Respondents in the Business
Sector:> Merchandising Manufacturing Pooled Data

Category Frequency Percent Frequency Percent Frequency Percent
Manager 255 47.6 240 47.8 495 47.7
Active Owner 281 52 262 52.2 543 52.3
Total 536 100 502 100 1038 100
Source: Researcher’s computation in SPSS and arranged in Excel.
Table 4.1 above demonstrates that out of 1038 sample respondents, 536 are either
managing or owning the merchandising form of businesses, while the remaining 502
respondents own or manage the manufacturing form of business. Table 4.1 additionally,
indicates that 47.6 percent of the responses in the merchandising sector, 47.8 percent
responses in the manufacturing sector, and about 47.7 percent of the total responses both
sectors are active managers. The lower part of the above Table shows respondents who
are owners of the firms as well as they are managers in the firms. The number of
respondents in this category is 281 for merchandising which is about 52 percent of the
536 responses, 262 which is about 52.2 percent out of 536 responses, and overall, 543
which comprises around 52.3 percent of the total (1038) responses are active owners.
Despite the slight differences, Table 4.1 indicates that there is an equivalent number of
firms managed by owners compared to those firms managed by professional managers.
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This result defies the notion that most firms in Ethiopia are managed by owners rather
than professional managers. However, considering the source of the sample firms which
have been collected from listings of business portals, the result may not represent the
overall firms of the city. Firms listed in the business portals might be a type of firm which
have better know-how than those firms which do not know about the benefit of getting
listed their products in the web-based market alternatives. Nevertheless, this result shows
that there is around an equal number of responses collected from the distributed survey
questionnaire.
Age of the entrepreneur

Several researchers report that age empirically plays a significant role in determining the
growth of business enterprises (most of the time negative effect). Supporting this
statement, (Hambrick & Mason, 1984; Sinha, 1996; Reynolds et al., 2000; El Hamzaoui,
2006), argued that age is generally associated with more conservative behaviour, and thus
exerts a negative impact on the performances of the firms. This is due to the notion that
older manager or owner is less inclined to adopt innovative behaviour and hence attached
to a certain organizational status-quo which generate a more prudent behaviour. Younger
individuals, on the other hand, are more inclined to take risks and eager for new risky
ideas which they believe is necessary to adapt to make grow their business (Hambrick &
Mason, 1984).
Reynolds et al. (2000) found that individuals aged 25-44 years were the most
entrepreneurially active. Findings from another study in India by Sinha (1996) disclosed
that successful entrepreneurs were relatively younger. In their exploratory study of
owner-managers and firm characteristics in Nigeria, Woldie et al. (2008) reported that
middle-age and older owner-manager tend to run more growth-oriented firms. As far as
Morocco is concerned, El Hamzaoui (2006) investigated the failure factors for SMEs in
Morocco and found that the young age of entrepreneurs (< 35 years) is related to the
failure of firms.
The age of the respondents was included in the survey questionnaire (see question number
23a). From the responses the maximum age reported was 77 while the minimum age of
owner or manager of the target firms is 20 years old. The arithmetic means the age of the
respondents was about 38.42 years with a standard deviation of about 10.2 years. This
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result was a result of the 1038 cases comprised of the two sectors when the age responses
are taken as a continuous variable.
To see clearly which age group is more owning or managing the firms in Ethiopia, the
continuous variable was transformed into five age categories. The result as calculated in
the frequency distribution function of SPSS is presented in Table 4.2 for the combined
data set and demonstrated in the two charts, in Figures 4.2 and 4-2 separately for the
manufacturing and merchandising data sets.
Table 4.2 Age Group Distribution of Firms In Addis Ababa

Frequency of Age Percent of Cumulative
Age Group Group Age group Percent
20-30 233 22.4 22.4
31-40 424 40.8 63.3
41-50 266 25.6 88.9
51-60 78 7.5 96.4
61-77 37 3.6 100
Total 1038 100
Source: Result calculated in SPSS from the data collected by the researcher from Addis
Ababa
As it is depicted in Table 4.3 above, about 63.3 percent (22.4 percent and 40.8 percent)
of respondents are under the age of 40 years old (a summation of 233 responses for the
age group under 30 and 424 responses for the age group 31 up to 40). Referring to column
four of Table 4.3, if the cumulative percentage of age group is allowed to further goes
into the underage group between 20 and 50, around 88.9 percent of the respondents falls
under this age. This shows that the majority of the firms are either owned or managed by
owners or managers who are in the young adult (30 to 40 years) and younger age (20 to
30) group. The ownership or management of firms in Ethiopia is of the old mostly from
the ages bellows the middle adult age (i.e. below age 50).
As it is depicted in the above two figures figure 4-1 and 4-2, the percentage distribution
of age groups among the manufacturing and merchandising sectors is almost similar.
About 41.43% of the manufacturing and 40.3% of merchandising firms are
owned/managed by the age group between 31 to 40. This is quite similar to the result of
the combined data set which indicates 40.8 percent of respondents are in this category.
The share of old (age 61 and beyond) managers or owners in both manufacturing and
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merchandising sectors is below 5 percent (2.99% for merchandising and 4.18 for
manufacturing). However, there is some difference in the percentage distribution of the
age group between 20 and 30. In this younger age category, 16.73 of merchandising and
27.8 of manufacturing are younger respondents.
Figure 4-1 Age of Respondents for Figure 4-2 Age of Respondents for
Merchandising firms Manufacturing firms
The finding from both the figures (4-1 and 4-2) shows there less old generation in the
management of most firms. This reduces the susceptibility of the negative older age effect
on supposed to affect the growth and performance of firms in the literature. Because
around 89 percent (see Table 4.3) are aged below meddle adult which is aged 20 up to
50. If we combined all the age categories under 50 in both sectors as it is shown in figures
4-1 and4-2, the cumulative result for both appeared to be 90.7 percent and 87.1 percent
respectively. Whether the firm is a manufacturing sector or merchandising sector, there
is no much difference in ownership or management firms in the City.
Gender of Respondents
According to Mazzarol et al. (1999), females were generally less likely to be founders of
new businesses than males. Similarly, using a sample of 128 Norwegian undergraduate
business students, Kolvereid (1996) found that males had significantly higher
entrepreneurial intentions than females. Considering these empirical findings, gender was
included as a factor of firm growth determinants in this model.
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The question regarding the gender category of respondents was asked in question number
24a of the survey questionnaire. As demonstrated in Table 4.3 the gender distribution of
respondents’ was presented in a way that shows comparatively for the merchandising,
manufacturing, and the combined data set of the study. Accordingly, 13.8 percent of
respondents (which is 74 responses out of 536) in column three of and 22.3 percent
responses (which is 112 out of 502) of the same Table fifth column are female
respondents for merchandising and manufacturing firms respectively.
Table 4.3 Gender Distribution of Respondents

Female 74 13.8 112 22.3 186 17.9
Male 462 86.2 390 77.7 852 82.1
24a Total 536 100 502 100 1038 100
Source: Researcher’s computation in SPSS 25 and Recompiled in Excel 2016:
In the reverse, the remaining around 86.2 percent are male respondents from the
merchandising sectors wile, and 77.7 percent are from the manufacturing. When trying
to see the result of the pooled data set, it shows that male ownership/management of firms
in the capital city is far more than that of female ownership/management of firms.
Figuratively, while 17.9 percent (189 out of 1038 responses) are female respondents the
majority remaining, 82.1 percent (i.e. 852 out of 1038 responses) represent male
ownership/management.
This shows that the vast majority of firms in Addis Ababa whether it be manufacturing
or merchandising sector is owned or managed by gender male managers.
Experience of Respondent
Many researchers have argued that the greater the entrepreneurs’ previous experience,
the higher their entrepreneurial quality will be, as the experience will have involved a
learning process that helps them to identify opportunities, reduce their initial inefficiency,
and also improve their capacity in performing various tasks (Rauch & Frese, 2000;
Fielden et al., 2000; Guzman & Santos, 2001; Gundry & Welsch, 2001; Guzman &
Santos, 2001; Ucbasaran et al., 2004; Kamitewoko, 2013).
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Categorizing in two parts (general business experience and whether the experience is
related to activities of the firm), this study included the experience of active owners or
managers in the distributed survey question. As seen in Table 4.4 question 28a denotes
the perceived general business experience of firms while 27a indicates whether the
experience reported was related to the current business activity of the firm.
Table 4.4 Business Experience of Respondent

Business Experience of Respondent 28a
No 382 71.3 208 41.4 590 56.8
yes 154 29 294 58.6 448 43.2
28a Total 536 100 502 100 1038 100
Related Business Experience of Respondent 27a

No 428 79.9 375 74.7 803 77.4
yes 108 20 127 25.3 235 22.6
27a Total 536 100 502 100 1038 100
Source: Researcher’s computation in SPSS 25 and Recompiled in Excel 2016
Accordingly, 29 percent of merchandising, 58.6 percent of manufacturing, and overall

around 43.2 percent of both sectors have business experience before establishing their
businesses. Whereas, the majority of merchandising firms (71.3 percent) and about 41.4
percent of firms in the manufacturing sector respondents that they had not general
business experience before forming their businesses. The rest of others have reported that
they have not business experiences before the formation of their firms.
Coming to the second part of the experience, which requested respondents to give
whether they have had any experience related to the business activity they currently are
engaged in, they responded as it is demonstrated in the lower part of Table 4-4. The
overall experience of the owners or managers for both sectors was dropped from 43.2
percent in the former case to 22.6 percent to the related business experience case. Related
business experience of respondents from the merchandising and manufacturing sectors
also dropped somehow to 20 percent (108 responses out of 536) and 25.3 percent (127
out of 502 responses) respectively (see Table 4-4).
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The finding in Table 4-4 indicates that respondents in the manufacturing sector have
more business experience than that of respondents in the merchandising sector. Even
though the difference (20% responses for merchandising compared to 25.3% for
manufacturing) is not as much as the case shown in the general business experience, in
general, we can say that respondents in the manufacturing sector have more experience
related to the activity of their business enterprises than the of respondents in the
merchandising sector.
Compared to firms engaged in the merchandising sector, the manufacturing sector is

characterized more by long term nature. Most of the time firms did start manufacturing:
rather they mostly developed from similar activities in the service sector such as from
distributing merchandising to producing the product they have been selling before. The
finding in Table 4-4 supports that owners who are going to establish manufacturing firms
have to have more experience than that of firms in the merchandising sector. Comparing
the two sectors, the manufacturing sector has more barriers to entry than the
merchandising sector might require to enter. Hence, it is apparent that owners of
manufacturing firms have more experience than that of the merchandising firms.
Educational Background of Business Owner and Family

The importance of education on entrepreneurship has been extensively mentioned in the
literature. While some studies noted the absence of a link between education of the
entrepreneur and business performance (Brush & Chaganti, 1998), numerous studies,
however, established that the level of education of the manager has a positive impact on
performance (Dunkelberg & Cooper, 1982; Storey et al., 1989; Westhead, 1995; Julien,
2000; Almus, 2002). Haynes (2003).
The main purpose of discussing the descriptive part of the education background in this
section is therefore to pave the way for the inclusion of the variable in the subsequent
firm growth. As part of the educational background, this section presents the education
status of respondents and their families. Having such a detailed educational background
of the respondents in turn allows the researcher to test which background will have an
impact on the later model. Thus, Table 4.5 and Table 4.6 are demonstrated to present the
educational status of respondents and their parents respectively.
Table 4.5 Educational Background of Business Owner and Family
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Education Status of Respondent 25a
Category Frequenc Frequenc Frequenc
y Percent y Percent y Percent
School Not Joined 2 0.4 54 10.8 56 5.4
Elementary 164 31 156 31.1 320 30.8
High School 282 53 165 33 447 43.1
Certificate to Bachelor 61 11.4 101 20.1 162 15.6
Masters and Above 27 5.0 26 5.2 53 5.1
25a Total 536 100 502 100 1038 100
Respondents in both the merchandising and manufacturing sector of the target firms were
asked to select one from the five educational status categories. Totally, the valid response
was 1038 respondents (536 from merchandising and 502 respondents from
manufacturing sectors). As it is stated in Table 4.5, about 53 percent of respondents in
the merchandising sector is learned until high school level, while 31%, 11%, 5%, and
0.4% respondents have an educational status of elementary level, certificate to bachelor
level, master and above, and not joined the school at all respectively.
Compared to responses in the merchandising sector, the total responses for the
manufacturing sector who have a certificate and above education level is 10% higher than
respondents in the merchandising sector. The total respondents in the manufacturing
sector who have a certificate, bachelor's degree, and magister and beyond are more than
25 percent.
Overall when we combine the two sectors, the pooled data gives around 5.4 percent firms
not joined a school at all; 30.8 percent have visited elementary level; another 43.1 percent
have seen high school level, and the remaining 20.7 percent (a total of 15.6 and 5.1
percent) participants joined higher education including diploma, bachelor degree, and
beyond (see Table 4.5 for percent and figure 4-5 for the count).
Figure 4-3 Education Background of Respondents (Combined Data)
126
In summary, the distribution of respondents in the manufacturing sector seems fairly

distributed. Unlike in the case in the merchandising sector, no education status has got
more than 50 percent responses. high school and Elementary level respondents have
equivalent percentage distribution among the sample, which is around 33 percent for the
former and 31.1 for the later. Generally, we can conclude that participants from the
manufacturing sector are more educated than those in the merchandising sector. This may
be because the manufacturing sector needs more technical know-how than the
merchandising sector does.
Table 4.6 on the other hand depicts the educational status of parents. A similar question
was raised to inquire about the educational status of parents to the research participants.
As can be seen in Table 4.6 below, the only educational status either or both parents have
through is an elementary level of education. Neither fathers nor mothers of the
respondents have educational status more than the elementary level.
Only 10 percent (52 out of 536) of fathers and 4 percent (23 out of 536) of mothers in the
merchandising sector have joined during their life an elementary school while the rest
majority haven’t even visited formal schooling. Whereas only 46 out of 502 (about 9.2
percent) fathers and 19 out of 502 (which is about 3.8 percent) of mothers of the
respondents in the manufacturing sector have an elementary level of education. Taking
the combined data set, only 98 fathers and 42 mothers out of the total sample 1038 in the
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two sectors (i.e. around 9.4 percent 4 percent respectively) have an experience of joining
the elementary school.
Table 4.6 Educational Background Family Members of the Owner

Education Level of Father 29a
School Not 484 90.3 456 90.8 90.6
29a Joined 940
Elementary 52 10 46 9.2 98 9.4
Total 536 100 502 100 1038 100
Education Level of Mother 30a

30a School Not 513 95.7 483 96.2 996 96.0
Elementary 23 4 19 3.8 42 4.0
Total 536 100 502 100 1038 100
In summary in all cases, more than 90 percent of parents of the research participants have
not joined formal education. Besides, no parent of the research participant has an
education level beyond elementary. However, there are slight differences when we
compare the level of education between fathers and mothers of the respondents: the
former outweighs by more than double the later in terms of experiencing elementary level
school. Nevertheless, observing the overall education level of parents, it could be
concluded that the variable, education of parents wouldn’t have an important impact on
the difference among the growth of firms. This issue will be discussed in the inferential
part of the data analysis.
4.2.2 Basic Information of Firms in Addis Ababa City

Several studies (for example, Bates & Nucci, 1989; Storey, 1994; Baum & Locke, 2004)
have attempted to explain the linkage between attributes of firms and their growth. The
classical firm characteristic includes firm size and age. Besides these attributes, Storey
(1994) considered the location of business enterprises among the key constituents of
firms’ growth. Hence it is worth including these attributes in a model of firm growth
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studies so that the growth model can give a better view about the growth of firms and its
determinants (Kraut & Grambsch, 1987; Kallerberg & Leicht, 1991).
Under this subsection, descriptive statistics of some basic information about firms will
be discussed. The discussion in this sub-topic presents a discussion about the legal status
of target firms, major sales location of the sample firms, industry distribution of the firms
under investigation, and their major customers. Descriptive analysis of basic information
about all sample firms is discussed in the subsequent pages demonstrated in four Tables.
Legal Status of Firms in Addis Ababa City

Researchers such as Edjigu, (2016), found that the legal status of firms has a significant
positive impact in determining the growth & technical efficiency of Ethiopian
manufacturing firms. Besides furthering this result into the merchandising sector, this
thesis incorporated legal status as a control variable. Hence, before, integrating the
variable as procedure data analysis, the researcher presented the distribution of the target
firms among the forms of business enterprises based on their legal status. As can be seen
in Table 4.7, share company, private limited company, cooperative business, and sole
proprietor form of business enterprises were the alternatives provided in the questionnaire
to the research participants.
Table 4.7 Legal Status of Firms in Addis Ababa City

Legal_Status31a
Share Company 20 3.7 33 6.6 53 5%
Pri.Ltd. Company 50 9.3 50 10.0 100 10%
Cooperative Busi. 21 3.9 27 5.4 48 5%
Sole Business 445 83.0 392 78.1 837 81%
Total 536 100.0 502 100.0 1038 100%
Table 4.7 describes that about 83 percent of merchandising and 78.1 percent of
manufacturing firms participated in this study are established by individuals as a sole
business form. The next large form of business organizations that participated in this
study are firms established as a private limited company. The percentage of
merchandising and manufacturing firms incorporated in the sample of this study is 9.3
percent and 10 percent respectively. Merchandising firms having a legal status of a share
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company are about 3.7 percent of the valid sample cases. Only 6.6 percent of firms in the
manufacturing sector is in this business category.
Figure 4-4 Figure 5.2: Legal Status Distribution of Firms in Addis Ababa
Source: Researcher’s computation in SPSS 25
Moreover, Figure 4-6 demonstrates how the sample firms in this study are distributed
among the four categories of firms. As can be observed in Figure 4-6, the sole
proprietorship form of business, with around 80.64 percent out of the total 1038 firms,
take the lion share in this sample. Private limited companies, with 100 firms out of 1038
(which accounts for about 9.63 percent) follow the sole proprietor form of businesses.
The remaining others accounted for by share companies and cooperative form of business
with about 5.11 percent and 4.62 percent firms in the valid sample cases of this study.
In general, the legal form distribution of sample firms among the forms of business
provided in the questionnaire, by and large, seems distributed similarly. This shows that
even if firms are in the category of medium and large forms of businesses in terms of
size, still the legal status remains sole proprietor. Firms in the sole proprietor form
businesses are controlled and managed more by owners. Whereas, unlike sole proprietor
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businesses, the management responsibility of firms in the more formal businesses is
shouldered upon the professional management of those firms.
Sales outlet in Mercato Location of Firms

Several studies have including (Dahlqvist, et al., 2000; Liedholm, 2002; Harabi, 2003
attempted to explain the role of location in growth firms. In their studies, these scholars
argued that the geographic area, where a firm is located, has implications for its access to
markets and resources such as finance, skilled labor, subcontractors, infrastructure, and
other facilities. Harabi (2003) in Morocco, found that the location of firms plays a
significant positive role in determining the growth of medium-sized enterprises in the
country. Particularly, SMEs located in big cities such as Casablanca and Fez grow faster
than those located in relatively small urban areas of medium size such as Tangier and
Rabat.
Taking this empirical result into consideration, sample firms were requested to state their
major sales outlet which represents their main location. Table 4.8 in this section,
therefore, demonstrates the descriptive analysis part of the location variable. Even though
the participants reported different locations in their firms, the researcher categorized all
the responses in two categories: firms having sales outlets in the Mercato area (the biggest
open market in Africa) and firms did not have sales outlets in Mercato. Like the prior
Tables, the Table demonstrating the location of firms presents the result of the descriptive
analysis for merchandising, manufacturing, and combined sectors.
Table 4.8 Sales outlet in Mercato Location of Firms

Location Of Firms (Location36a)
Other Only 367 68.5 355 70.7 722 70%
Mercato 169 31.5 147 29.3 316 30%
Total 536 100.0 502 100.0 1038 100%
Observing at the percentage columns of Table 4.8, the percentage distribution of

merchandising and manufacturing firms have almost similar distributions. Only 31.5
percent (169 out of 536) of merchandising and about 29.3 percent (147 out of 502) of
manufacturing sector firms have sales outlets in Mercato, the largest business area of
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Ethiopia. Combing the two sectors, with 316 and 722 out of the total 1038 firms, the
percentage distribution of participant firms is 30 percent in Mercato and the remaining
70 percent majority located in places outside Mercato.
Mercato as the largest market in the country, it attracts a large number of customers and
subsequently, businesses having sales outlet in this market might have better demand and
market for their products. Like other controlling variables after all necessary tests and
research procedures, these variables will be discussed in the inferential part of the result.
Industry Distribution of Merchandising and Manufacturing Sectors

The industry wherein firms engaged are among the factors identified as determinants of
a firm’s performance. After conducting necessary procedures thus, industries found
correlated with growth indicators will be incorporated into the growth model in the latter
part of this chapter. However, there needs to describe what does look like the distribution
industry types among the two sector of the target firms of this study. It has been proved
that sector differences do matter in the empirical results. For instance, a firm in the labour-
intensive sector might be more likely to engage in employment growth when compared
to the less labour-intensive one in terms of that growth indicator.
Table 4.9 Industries Distribution of Firms in Addis Ababa have Engaged in

Sector:> Merchandising Manufacturing
Category Frequency Percent Frequency Percent
Food and Beverage 60 11.2 97 19.3
Textiles & Fashion 67 12.5 67 13.3
Leather 9 1.7 58 11.6
Paper 10 1.9 11 2.2
Chemicals 3 0.6 8 1.6
Plastics & rubber 18 3.4 28 5.6
Machinery and equipment 21 3.9 15 3.0
Electronics 57 10.6 26 5.2
Furniture & Wood Products 26 4.9 68 13.5
Constriction Material 65 12.1 89 17.7
General Merchandise 200 37.3 0
Basic & Fabricated metals 0 35 7.0
Total 536 100.0 502 100.0
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Firms that that participated in this study are categorized into eleven industry categories.
The list of industries that the sample firms engaged in is revealed in Table 4.9, comprising
columns for merchandising and manufacturing sectors. The descriptive result for the
combination of these two firms is depicted in the pie chart demonstrated in Figure 4-7.
As it is revealed in column two of Table 4.9, the largest number of firms participated in
this study are merchandising firms engaging in selling general merchandising goods to
their customers (which is 200 out of 536 valid cases accounted about 37.3 percent of the
merchandising sector). On the other hand, the largest sample proportion of industry
collected to the sample of the manufacturing sector is the Food and Beverage industry
accounted for 19.3 percent of the 502 valid sample cases. Similarly, in this sector, firms
engaging in the production of materials for the construction industry with 17.7 percent
out of 502 manufacturing firms, follows the food and beverage industry in proportion of
participation in this sample.
Since the inferential part of the study, especially, the structural model developed in this
is based on the combined data set, it is necessary to discuss the what looks like the
industry distribution of the research participants when both merchandising and
manufacturing firms are combined to give a pooled data view. Concerning this condition,
Figure 4-7 presents the combined sample distribution among the eleven industries
identified during data collection from the firms.
This pie chart reveals the result of 1038 firms which are a combination of merchandising
and manufacturing participants. As can be observed in the pie chart, there is no single
business industry comprised of above 20 percent of our sample firms. The data came
from twelve different types of industries.
With about 19.27 percent of firms, the largest number of participants in this study are
firms engaging in delivering collections of general merchandising goods to their
customers; shortly, they are firms from the General merchandising industry. The second
biggest participants are firms from the production and selling of foods and beverage
industry products. Their proportion is 15.3 percent of the 1038 valid cases. The third-
largest proportion of firms in this study with 14.84 percent of the total combined sample
are those firms engaging in the production and selling of materials for the construction
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industry. With 12.91 percent, firms participating in the textile industry have also among
the largest proportion in the sample this study.
Figure 4-5 Industries Distribution of Firms in Addis Ababa Combined Data
Source: Chart prepared in SPSS 25
Firms producing or participating in selling of furniture, electronics, leather and leather

products, plastics and rubber, machinery and equipment, paper and paper products are
also part of the sample in this survey with different percentage proportions starting from
about 9 percent extended downward to around 2 percent respectively.
Major Customers of Firms in Addis Ababa

The type of buyers within an economy determines the business market's network of that
business environment. In addition to targeting specific types of customers or sectors of a
specific market, firms can adapt their products and services to different types of
marketplaces. These various markets are predominantly comprising of consumption-
based customers, business-oriented customers, and government customers. These three
types of markets, in the marketing literature, are categorized into three main business
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networks: Business to Consumer (B2C), Business to Business (B2B), and Business to
Government (B2G) marketing networks.
B2G networks provide a platform for businesses to bid on government opportunities

which are presented as solicitations in the form of a request for proposals (RFPs) in a
reverse auction fashion and government procurement tenders by which suppliers respond
to them. Empirically, firms supplying their products to the government in Russia
accounted for 10 percent of the total demand in the country Sekerin, Avramenko,
Veselovsky, & Aleksakhina, (2014)
Ethiopia is among the African countries spending a larger portion of its GDP on different
segments of its economy (World Bank Group, 2016). Much the spending went through
the procurement channels mostly done by government agencies. Thus, government
agencies in Ethiopia are source markets for those firms engaging the Business to
Government (B2G) form of business enterprises.
To see the difference in the growth of firms participating in B2G against firms didn’t
supply their products to the government, it is imperative to incorporate this concept into
the comprehensive growth model as will be discussed in the inferential part of this
chapter. Nevertheless, it is also vital here to discuss some descriptive parts of customers
of firms so that we can have a better overview of the business networks of Ethiopian
firms. The following three figures, (figure 4-8, to figure 4-10) demonstrate the responses
of research participants from merchandising manufacturing and combination of them
respectively. Respondents were asked to select a major buyer of their products from the
four alternatives provided in the questionnaire. As stated in question number 32 the
alternatives provided form selection were government agencies, private business
organizations, walk-in customers, and miscellaneous customers.
Figure 4-8 shows that 39.18 percent and about 28.73 percent of merchandising firms in
Addis Ababa sell the majority of their products to consumers and businesses respectively.
Firms in the merchandising sector having government buyers are limited to around 8.4
percent, while the rest 23.69 percent of businesses in this sector did not have such a
customer accounted for a large portion of their sale (a major customer). Instead, they sell
their products to any of the three customer types and they did not consider any of them
135
play a major role. Firms having such mixed nature of sales were represented in the
category named ‘miscellaneous customers’.
Figure 4-6: Distribution of Customers Figure 4-7: Distribution of Customers

Merchandising Manufacturing
Figure 4-9, denotes the responses of participants from the manufacturing sector. Major
sales of this sector are accounted for by customers from the private business. 63.55
percent of transaction in this sector is performed with the private business organizations.
The result indicates that most of the manufacturing firms are participating in the B2B
market network. As figure 4-9 denotes, the next highest transaction after the private
business is a transaction between manufacturing firms and government agencies. This
business relation represents the B2G business network style. The transaction with walk-
in customers which represents the B2C business network accounts for 11.95 percent of
manufacturing firms. The rest about 3 percent of manufacturing firms have not a constant
major customer. They believe that their sales always came from various market networks.
The next pie chart depicts the combined result of the major customers.
Totally, out of 1038 sample firms 473 (45.57%), performs its major transaction with
private businesses. This result denotes that nearly half of the manufacturing and
merchandising firms are participating in the B2B business network segment. Firms who
sell the majority of their products to government agencies and walk-in consumers are 26
percent and 14.55 percent respectively (see figure: 4:10).
136
Figure 4-8: Distribution of Customers Bothe sectors
The finding from the above three figures (figure 4-8, 4-9, and 4-10) denotes that the
manufacturing sector is more B2B and B2G business network-oriented. A total of above
21 percent and above 63 percent give more than 83 percent of manufacturing firms who
supply major sales value of their products to government agencies and private businesses.
Walk-in consumers, on the other hand, play a major role as major customers of above 39
percent merchandising firms. Hence, B2C might be considered as a major customer of
the merchandising sector in this study. Inferring from this result, it could be concluded
that, compared to the merchandising sector, the manufacturing firms are participating in
the wholesale of their products. On the other hand, merchandising firms unlike
manufacturing are mostly selling their products in the retail market to the end consumers.
4.2.3 Financial Sources and Structure of Firms Addis Ababa

Unlike the view of Modigliani and Miller (1958) which states “financial structure is
irrelevant in determining the performance of firms,” the financial structure according to
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Short, (1994) plays an essential role in the performance of firms. Consequently, Short
(1994) suggested that working on an explicit investigation of the relationship between
capital structure and firm growth (performance) provides a complete picture of the effects
of financial structure on the performance of firms.
Taking Short’s suggestion into consideration, this study attempts to include some aspect
of the financial structure indicators into the survey. Questions inquiring about financial
sources of firms were posed during the survey. The result of the survey questions is
demonstrated in the forthcoming two Tables categorized in terms of internal and external
financial sources.
External Financial Sources of Addis Ababa Firms

Short, (1994) “questioned whether different types of financing gave rise to different rates
of return.” Baumol et al. (1970) and Keasey and McGuinness (1990), found that
externally raised finance was associated with higher returns than internally raised finance.
A major argument often advanced for such findings is that highly-levered firms are more
closely monitored than all-equity firms, hence constraining management discretion over
the use of finance. Jensen (1986) cited in (Short, 1994) argues that “managers prefer to
finance projects internally so that they can avoid monitoring by the capital markets.
Managers have incentives to retain excess cash in the firm as it increases the resources
under their control. He develops a free cash flow theory of debt, based on the agency
costs associated with allowing managers to exercise discretion over the use of excess cash
retained in the firm. This cash may then be invested at below the cost of capital.”
The availability of external finance in the capital formation of the sample firms was
inquired in two separate ways: One regarding if they used funds from formal financial
institutions in and the other if they used to borrow from their families and other informal
financial sources. Table 4.10 illustrates how do the participants respond to these
questions. The upper rows of the Table indicate if they have borrowed funds from formal
financial institutions including commercial banks and microfinance institutions.
Whereas, the second part of the Table demonstrates that the existence of funds borrowed
from relatives, which represents informal financial sources.
The first part of Table 4.10 shows that 445 out of 536 (83%) merchandising firms did not
use funds from formal financial institutions. Only 91 firms which constitute (17%) of the
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merchandising sector have used the borrowed fund to support their businesses from the
regular financial institutions. Coming to the manufacturing sector, the result shows
around 66.9 percent of the 502 manufacturing firms are not users of borrowed funds from
the banking sector. The remaining 166 which accounts for about 33.1 percent of the sector,
are users of borrowed funds from formal financial institutions. The pooled data of both
sectors demonstrates a total average result of both sectors. As can be seen in the upper
part of Table 4.10, the average number of firms in both sectors which have used formal
financial source as a source of finance is only 24.8 percent. Whereas, the remaining larger
portion (781 out of 536 which constitutes around 75.2 percent) of both firms have not
used formal financial sectors to fund their business entities.
Table 4.10 External Financial Sources of Addis Ababa Firms
Sectors:> Merchandising Manufacturing Pooled Data

Borrowed From Formal Financial Institutions (Finance_19c)
No 445 83.0 336 66.9 781 75.2
Yes 91 17.0 166 33.1 257 24.8
Total 536 100.0 502 100.0 1038 100.0
Borrowed From Relatives (Finance19f)

No 366 68.3 442 88.0 808 77.8
Yes 170 31.7 60 12.0 230 22.2
Total 536 100.0 502 100.0 1038 100.0
Source: Prepared in SPSS compiled in excel
The figures in the lower part of Table 4.10 depict results regarding the existence of
informal financial support in the capital formation of the sample firms. Like the previous
upper part, this part is also presented in three main numeric columns: one form
merchandising, one for manufacturing, and the last one for a combination of these two
sectors. Each main column presents the number of firms and their percentage proportion
as to how they respond to the ‘yes or no’ questions if they have borrowed from relatives
to establish or expand their business entities. Accordingly, the percentage of firms which
have used borrowed fund from relatives are 31.17 percent merchandising, 12 percent
manufacturing and, 22.2 percent average of both sectors. The remaining majority which
constitutes 68.3% merchandising, 88 percent manufacturing and 77.8 percent of
139
combined sectors have not borrowed a significant amount of funds to support their
businesses.
Generally, almost more than 70 percent of the firms in the sample group did not support
their businesses through funds raised both from formal or informal financial sources.
Nevertheless, if we came to compare financial sources of merchandising and
manufacturing firms, we observe that manufacturing firms seems to have better access to
formal financial institutions than that of merchandising sector firms. However, in the case
of using borrowed money from relatives to fund business activities, the merchandising
show more exposure to informal source than firms in merchandising firms.
In general, this result indicates that firms in the manufacturing sector have more access
to and trusted by the formal financial sources than firms in the merchandising sector.
Formal banks lend their fund securing the loan through collaterals. Since the
manufacturing firms usually have more fixed assets for collateral than merchandising
firms, banks might be eager to lend their fund to the manufacturing firms expecting these
firms can make repayment more secure.
Internal Financial Sources and Diversification of Addis Ababa Firms

Coad, (2009) “Growth is not for long, if ever, simply a question of producing more of the
same product on a larger scale; it involves innovation, changing techniques of
distribution, and changing organization of production and management.” (Penrose, 1959,
p. 161). Although in some cases, “firms may be able to expand by producing more of the
same using the same resources, the time will come when a further expansion requires
them to take on new employees, build new production plants, or even diversify into new
markets.” Coad, (2009)
Rumelt, (1974) in his study suggested that rather than diversifying into technologically
unrelated areas, it is better to diversify into businesses close to the company’s main
business, in which it can utilize its core. Supporting Rumlet’s idea, Palepu, (1985) in his
study based on the Jacquemin-Bermy entropy measure of diversification and the line-of-
business data, finds out that firms with predominantly related diversification show
significantly better profit growth than firms with predominantly unrelated diversification.
Aiming diversification of firms through opening new branches will help firms as an
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internal source of finance and free cash flow, this study included diversification through
opening branches in determining the model of growth of firms.
Diversification can be measured simply counting the Standard Industrial Classification

(SIC) of firms or using the weighted measure of diversification (Montgomery, 1982). In
this study, diversification was measured by inquiring firms if they have diversified their
firms through opening branches within and or outside the country.
Table 4.11 demonstrates the firms’ diversification level measured in terms of having or
not having branches within and or outside the country. While the first indicates how the
firms are diversified within the territory of the business enterprise, the second specifies
if they have access to the external market through internationalization. Interpretation of
the figures demonstrated in the Table is described in the subsequent paragraphs for
merchandising manufacturing and pooled data of both sectors.
Table 4.11: Internal Financial Sources and Diversification of Addis Ababa Firms
Have Branch with in the country (Branch_In20a)
No 375 70.0 359 71.5 734 70.7
Yes 161 30.0 143 28.5 304 29.3
Total 536 100.0 502 100.0 1038 100.0
Have Branch outside the country (Branch_Out20b)

No 533 99.4 490 97.6 1023 98.6
Yes 3 0.6 12 2.4 15 1.4
Total 536 100.0 502 100.0 1038 100.0
The first part of Table 4.11 portrays if firms in the two sectors have branch businesses in
Ethiopia. Their response indicates that 70 percent of merchandising and 71.5 percent of
manufacturing firms have not business branches in the territory they operate. On average,
70.7 percent of both firms have not opened branches in the country. Only less than 30
percent of them have branches with Ethiopia (percent 30 of merchandising, 28.5 percent
of manufacturing, and 29.3 percent of combined sectors).
141
Coming to the second part of Table 4.11, it shows the percentage and number of firms
having branches outside the country. As can be observed from the Table, only 0.6 percent
of merchandising, 2.4 percent of manufacturing, and on average, 1.4 percent of combined
firms have branch business entities outside Ethiopia. The larger remaining portion of the
firms has not established branch businesses outside Ethiopia.
The result of this analysis indicates three main findings. First, an almost equal proportion
of firms in both sectors have branches in different locations of the country (around 30
percent). Second, the proportion of businesses having branches outside the country for
both sectors is very low compared to the number of branches firms have within the
country. Thirdly, in both cases, the manufacturing firms have more branches than that of
merchandising firms.
Informal Financial Support (Receipts from and payments to Others)

Another issue in the topic of financial sources and structure is the contribution of informal
financial support to and from the firms. Clearly stating, it is about if firms in Ethiopia
have informal entities which support funding of their business and or if there exist firms
which are supporting other business or individuals from earnings of the firm. Regarding
this issue, Table 4.12 shows how the fund receipts from and fund payments to informal
financial providers and beneficiaries respectively are distributed among the two sectors.
Table 4.12: Receipt and payment of Informal Financial Support

Receives Financial or Material Support from Others (Suportedby20c)
No 66 12.3 378 75.3 444 42.8
Yes 470 87.7 124 24.7 594 57.2
Total 536 100.0 502 100.0 1038 100.0
Support Other Business/s or Individual/s Financially from the Firm (Dependents20d)

No 54 10.1 0 0.0 54 5.2
Yes 482 89.9 502 100.0 984 94.8
Total 536 100.0 502 100.0 1038 100.0
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As can be seen in Table 4.12, respondents were asked two separate questions. One
regarding any support found from informal sources like other firms and relatives, while
the second deals about the support these firms provide to other firms or other
beneficiaries. The Table holding responses for the raised question is then interpreted and
discussed next to the Table per se.
Like any other Tables in the previous topics, Table 4.12 is also presented in three main
numeric columns. The first main column holds the frequency and percentage distribution
of merchandising firms. Whereas, the second and third main columns depict the same
distribution for manufacturing and combined sectors respectively. Besides this Table
demonstrates two issues at once: while the upper part of the Table is regarding the support
they found from others, the lower part indicates the support they provide to others from
the earnings of their firms.
As can be seen in the upper part of Table 4.12, around 87.7 percent (about 470 out of 5)
merchandising and 24.7 percent (124 out of 502) of the manufacturing firms have
received support from others (relatives, businesses of friends, and other social relations).
On average almost 57.2 percent (594 out of 1038) of both sectors have social relations
that cost them to spend from their earnings. All these figures indicate that participant
firms in this study have received support from such an informal source at least once in
their lifetime. However, a small proportion (around 10 percent) of merchandising firms
have not received any support from informal financial sources such as relatives.
As it was discussed above the lower part of Table 4.12, inquires whether target firms have
dependents (relatives, businesses of friends and relatives, individuals, organizations, or
any other form of beneficiaries) who need support from the earnings of firms.
Accordingly, around 90 percent (89.9%) merchandising and all of the manufacturing
firms have dependents who need the support of the firms. These are beneficiaries
including relatives, businesses of friends, and entities created due to social relations. On
average almost 95 percent of both sectors have dependents who need fund support from
these firms. It is around 10 percent of merchandising firms who did not create social
relations in their business environment which required them to spend resources from their
earnings.
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From the above interpretation, the merchandising sector has more supporting entities than
firms in the manufacturing sector. While approximately 88 percent of firms in the
merchandising sector received the support of others, only around 25 percent of firms in
the manufacturing sector received so. This may indicate either the manufacturing sector
is self-sufficient and financially more independent than firms in the merchandising sector
or the merchandising sector has better relations with the informal financial sources. In
the case of providing financial support or any economic value to others, the majority
(above 90 percent) firms in Addis Ababa have dependents who need support such kind.
Especially, all of the manufacturing sector firms spend resources from their earning to
support the business of friends, relatives, and other beneficiaries.
4.2.4 Expenses and Losses Incurred Due to Crime Related Losses

The level of crime in a business environment impacts the cost of doing business in such
a vulnerable environment. The higher the exposure to crime, the higher would be the loss
and expenditure thereof. Ultimately, these losses and expenses related to the crime lead
to impede or at least reduce the growth pace of firms (Gaviria, 2001; Benyishay &
Pearlman, (2014). Hence, it is imperative to include some variables representing these
issues. Accordingly, three sources of crimes are assessed to see how firms are affected
by criminal activities. Those are 1) expenses incurred to be protected from criminal
activities; 2) losses due to robbery, vandalism, and theft from outside the business; and
3) losses due to criminal activity made by own employees (internal crime). Their
descriptive statistics are presented in the part of the research.
Expenses Incurred to be Protected from Crime

If firms do not have trust in the safety of the business environment from criminal
activities, they may need security to protect their business matters. This need leads these
firms to incur an additional cost which could not be incurred if they had been established
in a safe business environment. Comparing with firms residing in a safe location, crime-
prone firms due to their location incurs more expenses than the other firms. Their growth
might also be lesser than the competitors in safe places.
To see if firms in Ethiopia are affected by such expenditures, this study asked participants
if they are paying a significant amount to protection entities or if the hire additional
security personnel. Their responses are summarised in figures 4-11, 4-12, and 4-13. The
first pie chart on the left side of the figures depicts the protection expenses incurrence
144
status of merchandising firms; while the pie charts in the middle and right side represent
manufacturing and a combined result of both sectors.
Figure 4-9: Payment to Figure 4-10 Payment to Figure 4-11 Payment to

for security for Security for Security
All of the figures show a similar status of expenses to get protection from criminal
activities. Around 81.72 percent (438 out of 536) of merchandising, 80.88 percent (406
out of 502) of manufacturing, and 81.31 percent (844 out of 1038) of combined sectors
pay expenses to get protection from possible criminal activity beforehand. Only less than
20 percent of all sectors did not spend on protecting their business from possible criminal
losses. That is 18.28 percent merchandising, and 19.112 percent of manufacturing firms.
Crime Related Business Losses

In addition to the protection costs incurred by more than 80 percent of firms (see figures
4-11, 4-12, and 4-13), there are also losses borne by real criminal activities. Thefts,
robbery, vandalism, and related crimes have negative effects on the growth of firms
(Gaviria, 2001; Benyishay & Pearlman, 2014). Considering its negative impact on the
growth of firms as stated in previous studies, loss from crime is also incorporated into
this study. Table 4.13 below depicts the experience of firms towards criminal activities.
Table 4.13 Loss from Theft, Robbery, vandalism and related criminal activities
Losses Due to Theft, Robbery, Vandalis16b
Yes 74 13.8 62 12.4 136 13%
No 462 86.2 440 87.6 902 87%
Total 536 100.0 502 100.0 1038 100%
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Respondents were asked to report if their business incurred any material cost due to
criminal activities from outside (robbery, theft, vandalism…). The merchandising,
manufacturing, and combined sectors exposed to such a significant cost are 13.8 percent,
12.4 percent, and 13 percent respectively. On other hand, 86.2 percent (462 out of 536)
merchandising, 87.6 percent (440 out of 502) manufacturing, and 87 percent of combined
sectors haven’t been exposed to major criminal costs which can impact their growth. This
result shows most of the participant firms did not incur a significant cost due to crime
aroused from outside the business.
Losses Due to Theft by Own Employees

Firms may also incur costs from internal criminal activities. Employees and members of
a family, in the case of family firms, may cause damage to business due to theft, and
embezzlement. Such activities from inside might not be recognized and may cause loss
which in turn might lead to impeding the growth of firms. To catch this idea, participants
were asked to share their exposure to such kind of internal theft and embezzlements. The
following figures (figure 4-14 merchandising, figure 4-15 manufacturing, and figure 4-
16 combined sectors) demonstrates the status of firms concerning internal crime exposure
measured in whether they incur significant value due to internal criminal activities.
Figure 4-12: Loss Due Figure 4-13: Loss Due Figure 4-14: Loss Due
to Theft to Theft to Theft
Unlike the criminal activities from outside the businesses, firms incurred costs due to
internal crime is comparatively large. It is almost the reverse to the exposure of outside
criminal activities. Figuratively, 83.77 percent of merchandising, 87.05 percent of
146
manufacturing, and on average 85.36 percent of both sectors have suffered the loss caused
by criminal activities from inside the firms, such as employees and relatives working in
the businesses.
Comparing Table 4.13 which represents the external criminal impact and figures 4-14 to
4-16 representing internal criminal impact, we can say that internal criminal activities are
more disseminated among both sectors than external criminal activities impact. This
means firms exposed to losses caused by dishonest behaviour and activity of employees
and relatives in the organizations are much bigger than the theft, robbery, and vandalism
caused by criminals from outside the organization. This result may lead readers to two
conclusions. On one hand, a lesser number of firms encountered external criminal
activities shows that firms in Ethiopia specifically Addis Ababa are safer from loss by
external criminal activities than the loss from internal crimes. Second, robbery and
embezzlement caused by internal agents (employees and relatives) are more than three of
the losses caused by external criminal activities. Thus, roughly, it could be concluded that
outside the business environment safer than inside one.
4.2.5 Financial Status, Number of Employees, and Age and Growth of Firms
Descriptive statistics of the specified variables are discussed in the coming pages from
content number 4.2.5.1 to 4.2.5.4 as follows.
Financial Status, Number of Employees, and Age of Sample Firms

This section discusses variables measured in absolute terms; including the age of firms,
the number of employees, and the other three financial statement items (sales, profit, and
capital) All variables including age are used to calculate dependent variables for the
model determination of this study. The number of employees and capital was collected
from three points for each target firm. One at the time of establishment, second from the
end of the year 2015, and third from the ending report of the year 2017. Whereas, sales
and profit were collected for two periods (2015 and 2017). This allows the researcher to
calculate the growth of firms taking the difference of these absolute values into account.
Since the age of firms is among the variables mostly incorporated in determining the
growth of firms in prior growth studies, it was also included here to support the growth
model in this study.
147
Before using these variables as dependent and independent variables in the inferential
part, it is necessary to discuss their descriptive features and see the trend of growth they
registered from their establishment to the data collection time. Table 4.14 demonstrates
all these issues descriptively in preparation for the inferential statistics part.
The age of firms was asked in question number 39a (see Appendix 1A) and reported in
Table 4.14 as follows. The minimum age of firms reported was three years from the day
of establishment, while the maximum is 70 years old. The mean age of businesses in this
study for both merchandising and manufacturing (total 1038 firms) is about 12.46 years
of business operation years.
On average, the difference among the age of these firms is about 9.3 years (see the
standard deviation column of row 39a in Table 4.14 next) of business operation. The
calculation of a firm’s growth indicator needs firms to fulfil at least three years of
business operation. Accordingly, the minimum business experience of all the firms in the
sample fulfil ed the requirement for further research.
Row number two up to row number three in Table 4.14, depicts the number of employees
firms have at their beginning period, the year 2015 and the year 2017. Questions
regarding the employment status of firms were asked in question number 40 to 41 (see
Appendix A1). The mean number of employees at the beginning of the firms was around
27 employees (mean=26.7 and std. deviation=78.3 employees). In the years 2015 and
2017, the average number of employees the sample firms have was approximately 51 and
64 employees respectively. The maximum number of employees at the beginning, the
year 2015, and 2017 were 1,015 employees, 1,487 employees, and 1,855 employees
respectively. In all the cases, the minimum number of employees at all periods was a
single one employee. Hence, on average, the variation in firms’ reports regarding their
number of employees is around 78 employees for the beginning report, approximately
125 employees for the year 2015, and about 156 employees (std. deviation column of
Table 4.14).
In the same Table, row numbers 5 to 7 demonstrates the capital status of firms at the time
of establishment, in the year 2015 and 2017 respectively. The minimum capital firms
started their operation with is no capital, while the maximum initial capital registered as
high as approximately birr 258 million (258,258,000). The average initial capital reported
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by the sample firms is birr 7,252,618 with std. deviation of more than birr 23 million. In
the year 2015 the maximum capital value raised to above birr 912 million with an average
capita of above birr 23 million and std. deviation around birr 75 million (see row 6 of
Table 4.14). Similarly, the year 2017 shows an increase in all the values compared to the
previous year and starting time. As can be observed in row number 7 of Table 4.14, the
minimum capital respondents reported was birr 5000 only. The highest capital value
reported in the year 2017 among the sample firms is above birr 1 billion (more accurately
birr 1,005,524,135). The same year average capital for all firms shows around birr 26
million. On average, each firm’s capital is far by birr 83 million (approximated) from the
mean value (birr 26,190,901) of all firms.
As it was stated earlier, the data for capital was collected from three data points: one from
the time of establishment, second from the year 2015, and lastly from the year 2017. In
all of the data points, the standard deviation is far greater than the mean capital value of
the firms. This big distance between the two parameters indicates that there is a large gap
among the capital of the target firms.
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Table 4.14 Financial Status of Merchandising and Manufacturing Firms in Addis Ababa
Row Q.N Description Minimum Maximum Mean Std.
No. Deviation
1 39a Age of Firms 3 70 12.5 9.3
2 40 Number of Employee/s in 2017 1 1,855 63.5 155.5
3 41 Number of Employee/s in 2015 1 1,487 50.9 124.6
4 42 Beginning Employee/s 1 1,015 26.7 78.3
5 43 Initial Capital 0 258,258,000 7,252,618 23,787,826
6 44 Capital as of 2015 0 912,040,032 23,755,618 74,852,295
7 45 Capital as of 2017 5,000 1,005,524,135 26,190,901 82,467,230
8 46 Sales Value in 2017 2,676 1,873,050,873 39,688,472 128,807,014
9 47 Sales Value in 2015 1,833 1,034,425,996 24,448,019 77,286,165
10 48 Profit in 2015 0 206,885,199 2,508,692 11,086,310
11 49 Profit in 2017 348 353,816,528 4,242,900 18,722,157
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Another issue in Table 4.14 is regarding the summary descriptive statistics of sales. Sales
revenue, which is used in determining one of the dependent variables in the growth model
of this theses is collected from two data points: one from the year 2015 and the other from
the year 2017. Data for sales revenue at the time of establishment was not available due
to poor documentation and less requirement to preserve such data for a long period.
Assuming three years’ data is sufficient to calculate the growth of firms, the researcher
only collected data regarding sales revenue from the years 2015 and 2017. Summary
statistics of the responses for sales revenue is then presented in row eight and nine of
Table 4.14 above.
Accordingly, the minimum sales revenue recorded in 2015 for the target firs is birr 1,833,
while the maximum is about little more than one billion birrs (i.e. 1,034,425,996). With
such a large gap, the mean sales revenue is birr 24,448,019 with a standard deviation of
more than 77 million birrs (birr 77,286,165). Similar to the previous variables (capital
and employee), the distance between the average sales revenue and each firms’ sales
revenue is on average more than 77 million.
Due to documentation and openness issues, the data for profit was collected similar to
sales revenue for two periods. Summary of the responses is presented in the 10th row for
the profit of 2015 and the 11th row for the profit of 2017. The zero minimum profit, above
1 billion maximum profit (i.e. 1,034,425,996), and an average profit of above 24.5 million
(24,448,019), both the merchandising and manufacturing firms show average gap (std.
deviation) of profit above 11 million (11,086,310). Similarly, the profit of the year 2017
for all the firms shows a gap of 18.7 million from the mean value (4,242,900). This is
also one of the biggest gaps observed in all the previous (Table 4.14) financial statement
items and the number of reported employees.
Generally, Table 4.14 shows the minimum, average and maximum values of employees,
capital, sales revenue, profit, and age of target firms. Except for the age of target firms,
the standard deviation of all of these variables is far bigger than their mean value. This in
turn shows, there is high variations which also might be caused due to the existence some
extreme values. In the existence of such extreme values, statisticians did not give a
specific solution. Aiming treatment outliers, some suggest the need for normalization of
such highly distributed data, while others advise it is better not to manipulate the original
data from its natural look. Some others contend that outlier data should have to be
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removed from the data set before using it for further analysis. According to the second
view, normalization and data avoidance may lead to the wrong conclusion through the
use of manipulated data during the normalization and data avoidance process.
Growth Rates of Employment, Capital, Sales, and Profit of Sample Firms

As was discussed in the literature part of this thesis, there is no deficiency in the volume
of literature on the growth of the business enterprise. However, due to the
multidimensional nature of firm growth, scholars including (Delmar, 2003; et al. and
Tirfe, 2015) could not arrive at a consensus regarding measuring of growth of business
enterprises objectively. As a solution to this argument among organization scholars, some
(like Davidsson, et al., 2006) suggested that researchers should consider the uniqueness
of each indicator in some respects, “it is better to examine these indicators separately in
more depth. Based on Davidsson’s suggestion we developed an inclusive growth model
taking both subjective (self-reported perceived growth) measures and the objective ones
(employment growth, sales growth, capital, and profit growth). This is stated in Table
4.15
Discussing the growth rate of firms helps to answer one of the objectives stated in the
introductory part of the thesis. Objective number one focusses on describing the trend of
firm-level growth in Ethiopia.
Among the main purposes why Table number 4.14 discussed was to calculate growth
rates from the different data points. Most researches take absolute growth changes as a
measure of firms’ growth, while others take relative growth. Relative growth is among
the commonly used firm growth measures Schmidt, (2016), usually measured by the
growth rate in percentage terms. With the available information on growth measures, we
have calculated the growth rate using the second alternative. Specifically, the cumulative
annual growth rate (CAGR), as was discussed in the conceptual framework and
methodology part, was used to calculate growth rates of sales, profit, capital, and
employment. The calculation will use the compound annual growth rate of sales, profit,
capital, and employment growth.
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Table 4.15: CAGR of Employment, Capital, Sales, and Profit growth along with
Perceived Growth
Std. Deviation
S. Growth Measures
Maximum
Minimum
N
Skewness
Kurtosis
Mean
1 Employee Growth Since Beginning (1037) .18 .23 -1. 1.88 2.31 9.78
2 Employee Growth Since 2015 (1038) .07 .04 -.04 .36 -.12 3.09
3 Capital Growth Since Beginning (1037) .26 .37 -.39 3.79 3.91 24.11
4 Capital Growth 2015-2017 (1037) .05 .06 -.15 .6 2.88 13.31
5 Sales From 2015-2017 (1038) .17 .06 -.27 .94 2.76 52.59
6 Profit Growth 2015-2017 (1029) .26 .28 3.03 -.54 2.29 12.46
Measure by Likert Scale Questions
7 Perceived Growth (1038) 2.47 .76 1.13 4.95 .65 .4
Table 4.15 demonstrates, different alternatives of firm growth measures: most of them
measured in terms CAGR except for perceived growth measured in five-point Likert
scale measures. The first six growth indicators in Table 4.15 were a result of CAGR,
while the seventh variable is measure with Likert scale measures. The values stated in
the brackets after every variable are valid responses of the distributed questionnaire. The
remaining paragraphs are devoted to discussing the descriptive statistics of all alternative
growth measures referring to Table 4.15.
The first and second row of Table 4.15 states the employment growth rate of firms staring
from two data points. The first one is about employment growth starting from the
beginning of the business operation; while the second one depicts the same rate for three
years (from 2015 to 2017). Since this study used annual employment growth starting
from the beginning as a dependent variable, the distribution of this variable was supported
with the histogram as follows. Figure 4-17 depicts the CAGR of employees since the
firms’ establishment.
The mean annual growth rate for the first growth period as depicted in figure 4-17 and
Table 4.15 first row is around 18 percent per year (mean= 0.18). in the same Table and
figure, the average deviation of every firm’s annual growth rate from the mean value
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measured in terms of standard deviation is 23 percent (std. deviation= .23). This indicate
the average growth of individual firms is far from the mean by 23 percent growth rate.
Besides, in the same Table similar row and figure above, the minimum CAGR observed
among the target firms was negative 100 percent (min= -1) annually. While the maximum
was about 188 percent (max= 1.88) annually.
Figure 4-15: Employee Growth Since Beginning
Source: Calculated in SPSS 25 using the researcher’s data
The second row of Table 4.15 portrays the compound annual growth rate of firms and
other summary statistics, calculated based on three-year employment data from the
sample firms. This row shows a mean growth rate of 7 percent (mean= .07) with a
standard deviation of 7 percent (std. dev= .04), a maximum rate of 36 percent (max=.36)
per annum, and a minimum growth rate of negative 4 percent (minimum= -.04). The
skewness value shows in between the criteria of acceptance for normality, which is
negative 0.12. However, with a higher kurtosis value (3.09), the employment growth rate
in this measure was found to be non-normal. Because the kurtosis value is above the
general rule according to Hair, et al., (2017) for normality (data value between positive
one and negative one).
Distribution of the growth as depicted in figure 4-17 indicates that a larger proportion of
firms are showing a growth rate above zero and below 50 percent annual growth rate.
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The next larger growth rate distribution of firms is the distribution extends from 50
percent to 100 percent annual growth rate. When we see growth rates below zero and
above one, figure 4-17 demonstrates only a small portion of firms registering such
extreme growth rates.
Additionally, Table 4.15 and figure 4-17 illustrates what looks like the feature of the data
concerning fair distribution around mean growth rates. As a measure of data distribution
skewness and kurtosis are among the tools used to verify whether the data is normally
distributed or not. Even though the normality of dependent variables is discussed in the
latter part of this thesis, it is worth also looking at the distribution of the data using
skewness and kurtosis.
"Skewness assesses the extent to which a variable’s distribution is symmetrical. If the

distribution of responses for a variable stretch toward the right or left tail of the
distribution, then the distribution is referred to as skewed. Kurtosis on the other hand is
a measure of whether the distribution is too peaked (a very narrow distribution with most
of the responses in the centre). The general rule for skewness is that if the number is
greater than +1 or lower than –1, this is an indication of a skewed distribution. For
kurtosis, the general guideline is that if the number is greater than +1, the distribution is
too peaked. Likewise, a kurtosis of less than –1 indicates a distribution that is too flat.
Distributions exhibiting skewness and/or kurtosis that exceed these guidelines are
considered no normal.” (Hair, et al., 2017, p. 61).
Therefore, comparing with general rules, both demonstrations (in Table 4.15 and figure
4.17) non-normal distribution of the growth rate with a skewness value of 2.31 and
kurtosis statistics of 9.78. This result portrays the growth rate of firms measured in terms
of employment is non-normal; which might need some treatments before going to be used
in the multivariate analysis in the structural equation modelling.
Next to employment growth Table 4.15 holds the growth rate of capital. From a wealth
maximization point of view, for investors, this study presumes a model of firm growth
indicated in terms of capital growth. Because for investors firm growth measured in
capital growth catch the need thereof and consequently, it will have better explaining
power to growth than other growth measures. To fulfil this view, the capital of firms
collected from different points of time was analysed in Table 4.15. Row number three (3)
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and four (4) of this Table depicts the result of this analysis. In the former row the summary
statistics illustrations about different results of capital growth since the establishment of
operation. In this row with a mean value of 0.26 and a standard deviation of 0.37, the
Table indicates an average growth rate of about 26 percent with an average of about 37
percent difference among the capital of firms from the mean. The minimum and
maximum annual growth rate for this measure is recorded to be negative 39 percent
(minimum=-.39) and 379 percent (maximum= 3.79) respectively. Similarly, 4th row of
Table 4.15 indicates the average annual capital growth rate of 5 percent (mean=.05), the
average deviation of the same from the mean 6 percent (std. deviation=.06), a minimum
rate of negative 15 percent (minimum= -.15) and maximum growth rate of 60 percent
Figure 4-16: Capital Growth Since Beginning
Source: Histogram resulted from the explore function of SPSS 25 using the
researcher’s data
Coming to skewness measure of capital growth, it shows a skewness value of 3.91 which
indicates asymmetric annual capital growth due to it is stretched towards the right. On
the other hand, with kurtosis value 24.11 the annual capital growth rate illustrates highly
peak concentrated data around the centre (see figure 4-18 and Table 4.15 row 3).
Correspondingly, the skewness measure for the annual capital growth rate of three years
(2015 to 2017) shows the non-normal distribution of the growth rate. Figuratively, the
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data is skewed towards the right with a skewness value of 2.88 which is above the general
rule for normality of any data. Comparing 13.31 kurtosis value of three year’s capital
growth with that of capital growth since the beginning, the former growth indicates more
distributed than in the later.
Row five and six of Table 4.15 three years’ sales and profit growth of firms in sample
merchandising and merchandising firm in Addis Ababa. The total number of valid cases
for variable sales is 1038, whereas profit growth got 1029 valid cases. The mean annual
growth rate of sales and profit is 17 percent (mean CAGR of sale =.17) and 26 percent
(mean CAGR of profit =.26). The average distance of firms’ sales growth and profit
growth is 6 percent for sales and 28 percent for profit. Here profit growth shows higher
dispersion compared to the distribution of sales growth rates. The minimum annual
growth rate is calculated to be negative 27 percent for sales and negative 54 percent for
profit. Regarding the maximum growth rate of the two measures, Table 4.15 indicates
about 94 percent and 303 percent growth rates for sales and profit respectively.
To see how the annual growth rates of sales and profit for the target firms, the study
supported the result of summary statistics with histograms. Histograms portrayed in
figures 4-19 and 4-20 illustrate how the firms are distributed along with extended growth
rates. Accordingly, almost all sales growth rates of the target firms are distributed
between zero to 25 percent annual growth rates (see figure 4-19). With this distribution,
its skewness value is 2.76 towards the right, which implies the sales growth rate is non-
normality distributed data. As can be seen from figure 4-19, sales growth rates most firms
are concentrated around the centre which makes the histogram look so peak. Numerically,
kurtosis value 52.59 represents, how the rates are concentrated around the mean. In both
criteria (skewness, and kurtosis), the sales growth shows no normally distributed growth
data.
Likewise, the distribution of firms along with the series profit growth rates as
demonstrated in figure 4-20 shows, most firms in Ethiopia are extended from negative
50 percent profit growth per annum up to around 50 percent per se. even though it is not
as much as sales growth, the profit growth rate shows a skewness value 2.29 towards the
right which denotes non-normality of the profit growth distribution among firms.
Besides, the non-normality connotation inferred from the skewness value was supported
with Figure 4-20 which signifies a very peak histogram by which most firms distributed
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around the centre. Figuratively, the kurtosis value which implies how concentrated is the
data around a particular rate shows 12.46 (see Table 4.15). This result is located much
further from the criteria (kurtosis value between -1 and +1) set by Hair, et al., (2017).
Figure 4-17: Sales Growth Figure 4-18: Perceived Growth
Source: Histogram prepared in SPSS 25 using researcher’s firm-level data
All the above growth measures are calculated based on CAGR, using historical data of
firms under study. These variables are presumed to be objective measures of firm growth.
However, there was a need for entrepreneurship growth literature to catch the behavioural
aspect of firms’ growth. Perceived growth, measured in terms of five-point Likert scale
items in this thesis, therefore, was presumed to meet this vital suggestion. The summary
of these responses calculated in SPSS after transforming the four individual items to
represent one construct (perceived growth) is portrayed in Table 4.15 and figure 4-21 for
discussion.
The mean value for perceived growth signifies the composite score (average of five
ordinary items converted into interval scale after transformed in SPSS to form this
construct) of the construct perceived growth which was given by the owners or managers
of both the manufacturing and merchandising firms. Hence, referring, figure 4-21 and
Table number 4.15, on average, managers and or owners of firms rate their firms’ growth
to be 2.47 points in a scale set at its highest perceived growth value of 5 points. These
figures represent how owners and managers of the sample firms perceive their growth
behavioural ly. Accordingly, the result indicates, on average owners and or managers of
the sample firms tend to disagree or somehow indifference on the growth of their firms.
Besides based on Nguli, (2017), suggestion, the result of this study is below the score
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considered and low (2.6) composite score set for Likert scale based data. On average the
dispersion of firms’ composite score for perceived growth is around 0.76 standard
deviations from the mean perceived growth result. This indicates more or less, most
growth perception of firms is close to the mean value for which are not further away from
0.76 standard deviations. Besides, the minimum composite score resulted from the
transformation is about 1.33 scores, while the maximum score is about 4.95 scores. This
implies that there are firms in Addis Ababa who strongly disagree on the existence of
growth in their businesses.
Figure 4-19: Perceived Growth
Source: Histogram calculated in SPSS 25 using researcher’s data
As can be observed from figure 4-21 and Table 4.15, the distribution of the composite
score extends from 1.33 up to 4.95 scores. Nevertheless, a large number of the scores are
concentrated from score 2 up to around scores 3. Specifically, there are around 300 firms
concentrated around the mean score value. Except for this specific score, most
distribution of the perceived growth scores shows a flat histogram feature. Having this
feature if we try to see the skewness and kurtosis values of this variable, Table 4.15
depicts a 0.65 skewness value and 0.4 kurtosis value. Skewness and kurtosis value less
than plus or minus one indicates there are fewer non-normality issues. This result, in turn,
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allows us to proceed further into different parametric statistics. Thus, perceived growth
as a dependent variable is used in the SEM part of this study.
Generally, except for perceived growth, all the growth rates above illustrate they have
issues concerning the normality of the data. Registering standard deviation above their
mean values; growth rates measured in terms of CAGR of employees since the beginning,
capital growth since the beginning, and three profit growth of firms showed higher
dispersion than the other measures (three years’ growth rates of capital, employee and
sales). Besides, in all growth measures except perceived growth, the growth rates are
highly concentrated around the mean and showed a peak growth rate distribution in all
the histograms they illustrated in. The skewness and kurtosis values are also resulted to
be very high which implies that all these growth measures need to correct or treat the
non-normality in the data.
After discussing some categorical variables and the different alternatives of firm growth,
this researcher tried to see if these categorical variables have some relations with the
growth measure (employment, capital, sales, and perceived growth). The result of these
correlation tests in turn was used to identify variables having a significant correlation
coefficient in determining the structural equation model. The correlation procedure for
factors with categorical nature and variables with continuous nature as recommended by
Kennedy, (1970) are tested by observing the ‘eta’ coefficient and coefficient of
determination (which is a square of the eta coefficient). This part is discussed in part II
of this study.
Comparing Growth of Firms in Addis Ababa City Sector wise

One of the objectives of this study was aimed at comparing the firm-level growth
performance sector-wise. The sectors are privately held medium and large-scale
manufacturing and merchandising sectors in Addis Ababa, Ethiopia. Table 4.16 and 4.18
depict group statistics of the target firms before and after transforming the data into
normal distribution respectively. In order to make a comparison between the growth of
the two sectors, a T-test procedure has conducted in SPSS using the group statistics in
two cases (i.e. before and after data transformation). The results of the T-test analysis for
both of the cases are demonstrated in Table number 4.17 and 4.19. The result of the
former Table represents the t-test of the data set for both sectors before data
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transformation, whereas, the later does represent the t-test of the normalized data set
(which is after data transformation).
As was noted above Table 4.16 depicts the mean growth values of firms in Ethiopian,
measured in different forms of growth. The four forms of growth measures are stated in
four rows as can be seen in the Table. Row one of column D shows the mean CAGR
employees since the beginning of both merchandising (Medsg) and manufacturing (Mfg)
firms.
Table 4.16 Group Statistics Before Transforming to Normal Distribution

A B C D E F
Std. Std.
Deviatio Error
Growth Measures Sector N Mean n Mean
1 Employment Growth Since Mrdsg 536 0.183 0.216 0.009
Beginning Mfg 501 0.171 0.244 0.011
2 Capital Growth Since Beginning Mrdsg 535 0.291 0.407 0.018
Mfg 502 0.221 0.331 0.015
3 Sales From 2015-2017 Mrdsg 536 0.167 0.072 0.003
Mfg 502 0.171 0.047 0.002
4 Perceived Growth Mrdsg 536 2.341 0.806 0.035
Mfg 502 2.333 0.814 0.036
Source: Computed in SPSS software using data collected from Addis Ababa firms
With a standard deviation of .216 and .244 (see row one of column E and the same Table),
the mean CAGR of the Mrdsg and Mfg firms is 18.3 and 17.1 percent respectively.
Showing a little higher percentage increase than the growth of employees, the mean
CAGR of the capital of firms appeared to be 29.1 and 22.1 percent for Mrdsg and Mfg
sectors respectively (see Table 4.16, row two, column D). The standard deviation for
capital growth is also greater than the stand of employees’ growth (std. dev = .407 and
0.331 for Mrdsg and Mfg respectively).
Sales growth, one of the growth measures in the study records the lowest growth rate
(mean CAGR of Mrdsg & Mfg =16.7 & 17.1 percent respectively) among all the other
growth measures. This measure has also the lowest standard deviation comparatively (i.e
std. dev.= .072, and .047 for Mrdsg and Mfg respectively).
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Perceived growth as it was discussed in several parts of this study measures the growth
of firms subjectively. the rate respondents provided to the researcher indicates the level
of satisfaction they feel from the performance of their business. In the extant literature,
perceived growth has been used as an alternative measure of business performance for a
long-time. In this study, understanding perceptions of business owners or managers
toward the growth of their business firms was measure in terms of their perception. The
interpretation is the higher the rate they respond, the more they are satisfied with the
performance and growth of their business firms. The mean rate of their responses
extended from one to five appeared to be around 2.3 (see last row, column D of Table
4.16) for both Mrdsg and Mfg sectors. With almost similar perception, both owners and
managers of both sectors have a medium level of satisfaction with the performance and
growth of their businesses.
In a nutshell, except for small differences, more or less, there is a similarity between the
growth figures of merchandising and manufacturing firms in the target area (Addis Ababa
Ethiopia). However, concluding the similarity or difference merely looking at the
magnitude could lead to a wrong conclusion which. Because comparison by observation
couldn’t give a clear understanding about the significance of the difference of the growth
rates in both sectors. Hence, there needs further statistical analysis to have a clear look
the significance and magnitude of the similarity or difference of the growth rate among
the sectors.
This was done in the T-test statistics in SPSS software. Table 4.17, and 4.19 depict how
significant the similarity is between the growth of the sectors. The former Table
demonstrates the result of the original data set while the later Table shows the t-test result
of the transformed data set. These two Tables compare the growth rate of the two sectors,
one for the original while the second for the transformed data.
As can be seen in Table 4.17, which depicts the T-test of the original CAGR (i.e. Before
transforming the dependent variables), only the mean capital growth value of the two
sectors was found significantly different from the growth rate of each other. The mean
capital growth rate for manufacturing is significantly (t=3.039, p=0.002) higher than the
mean CAGR of the capital of the merchandising sector (see row two of column ‘C’ and
‘E’ respectively in Table 4.17). Thus we reject the null hypothesis. Whereas, in the case
of the other three growth measures, the researcher failed to reject the null hypothesis
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which states “there is no difference between the growth of the merchandising sector
overgrowth of the manufacturing sector”.
Table 4.17 Independent Samples Test on the Compound Annual Growth Rate (CAGR) of
Mrdsg and Mnfg Sectors
Levine’s
Test for
Equality of
Variances t-test for Equality of Means
Growth A B C D E F G H
Measures before 95% Confidence
Data Sig. Interval of the
Transformation (2- Mean Std. Error Difference
F Sig. t df tailed) Difference Difference Lower Upper
EmployeeGroB 0.036 0.850 0.864 1035 0.388 0.01234 0.01428 -0.01568 0.04037
CapGrowthB 5.787 0.016 3.039 1035 0.002 0.07022 0.02311 0.02487 0.11556
SaleGrowth 2.718 0.100 -1.167 1036 0.243 -0.00442 0.00378 -0.01184 0.00301
P_Growth 0.143 0.706 0.159 1036 0.874 0.00798 0.05030 -0.09072 0.10667
Source: Computed in SPSS software using data collected from Addis Ababa firms
The magnitude of the difference among the capital growth of the two sectors was
measured further calculating the effect size. A measure of effect size called Cohen’s d
was used to see how big the difference is among the growth of the two sectors. Cohen,
(1988) suggested that Cohen’s ‘d’ is a better measure to gauge the strength of the
relationship among two samples. Accordingly, Cohen’s d was calculated taking the
sample size, the mean, and standard deviation of the two samples into the process in Rstat.
The rule of thumb according to Cohen, (1988) conventions for comparing the calculated
Cohen’s d value is: low, up to 0.20 Cohen’s d; medium up to .50 Cohen’s d; and High
greater than .80Cohen’s d.
The only growth measure found significant in the above t-test is capital growth. The effect
size as calculated in Cohen’s d gives a rounded value of 0.189 (see Table 4.17). This
value falls in the low effect category of Cohen’s rule of thumb. Hence, even though there
is a significant difference between the mean capital growth rate of the merchandising and
manufacturing sectors the difference could be considered insignificant. From this result,
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it is safe to say that there is not such a concerning difference between the growth of the
sectors in all growth alternatives.
The similarity of growth value changes among the two sectors in turn allowed the
researcher to see for combining the two data sets. Because the combined data set will
strengthen the sample size, especially, for the procedures taken in the structural equation
modelling which require a large sample size for good data analysis.
But before combining the two data sets, the researcher encountered a problem regarding
the normality of residuals. A two-step data transformation method was employed so that
the non-normality issue of the dependent variables would be solved (the data
transformation before and after the results of the four growth measures are stated in
Appendices 4.1A up to 4.1D). This method was suggested by (Templeton, 2011) instead
of using the traditional (try and error based methods like log transformation).
The result of the data transformation is demonstrated in Table 4.18 so that it would be
easy to see the change in values after the transformation procedure was conducted. As
can be observed in the Table, the two-step data transformation method emerged with
mean values, more or less, equivalent to the original growth mean values. Growth
measure with higher mean growth value in the original statistic appeared to be higher in
the transformed data also. As can be observed in column ‘D’ of Table 4.18, with a slight
difference, all the values are falling around their original growth mean values found in
Table 4.16 above.
Table 4.18: Group Statistics After Transformation to Normality

A B C D E F
S. Std. Std. Error
No. Growth Measures Sector N Mean Deviation Mean
1 Employment Growth Since Beginning Mrdsg 536 0.1910 0.23276 0.01005
Mfg 500 0.1630 0.22224 0.00994
2 Capital Growth Since Beginning Mrdsg 536 0.2796 0.37821 0.01634
Mfg 500 0.2341 0.36111 0.01615
3 Sales From 2015-2017 Mrdsg 536 0.1724 0.06173 0.00267
Mfg 500 0.1650 0.05894 0.00264
4 Perceived Growth Mrdsg 536 2.3648 0.77785 0.03360
Mfg 502 2.3314 0.78073 0.03485
Source: Calculated in SPSS, Arranged in Excel
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Hence, without radical change to the order of the growth measures, the transformed data
used to calculate t-test for the further testing of similarity of growth rates between the
two sectors, like it was done in the case of the original data.
Having the normalized dependent variables, it required again to see if there is a difference
among the growth indicators of the two sectors. Thus, similar to the previous t-test (Table
4.17), there was a need for a new t-test which would be used in examining the similarity
or differences of changes in growth rate between the merchandising and manufacturing
sectors. The t-test result calculated in SPSS to meet this need is thus, depicted in Table
4.19 below.
Table 4.19 Independent Samples Test on the Normalized Compound Annual Growth
Rate (CAGR) of Mrdsg and Mnfg Sectors
Levene's Test
for Equality
of Variances t-test for Equality of Means
A B C D E F G H I
Growth 95% Confidence
Measures before Sig. Std. Interval of the
Data (2- Mean Error Difference
Transformation tailed Differen Differen Cohen’s
F Sig. t df ) ce ce Lower Upper d
NEmployeBG 2.391 0.122 1.978 1034 0.048 0.02800 0.01416 0.00022 0.05579 0.12
NCapitalBG 2.391 0.122 1.978 1034 0.048 0.04550 0.02301 0.00035 0.09065 0.12
NSalesG15 2.391 0.122 1.978 1034 0.048 0.00743 0.00376 0.00006 0.01480 0.12
N_PGrowth 0.125 0.724 0.690 1036 0.490 0.03339 0.04840 - 0.12836
0.06159 0.04
Source: Cohens’ D calculated in Rstat Cohen’s D for two independent samples
(Merchandising and Manufacturing)
The t-test for equality of means assumes that there is no difference between the mean
growth values of merchandising and manufacturing firms. The last row of Table 4.19
shows an insignificant p-value (with p=0.49 which is far more than the 0.05 maximum
cutting point in social science research) probability value. Based on this result, we failed
to reject the null hypothesis which says “there is no difference among growth the two
sectors” (see column ‘E’ of Table 4.19). Thus, except for the normalized perceived
growth (N_PGrowth), no variable among the remaining three variables was found with
equality of mean growth rates between the two sectors. Whereas in the case of the three
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growth measures, the p-value is 0.048 for all the cases. This indicates that the mean
growth rates of all of the three measures, (Normalized Employment Growth, Normalized
Capital Growth, and Normalized Sales Growth) have a significant difference between the
two sectors.
Observing the last column of Table 4.19, which depicts Cohen’s ‘d’ as a measure of effect
size, the differences depicted in the t-test are in the lower (Cohen’s d=.12 for all the three
variables) category of Cohen’s environment. “Although some empirical evidence has
been gathered to show that slight deviations in meeting the assumptions underlying
parametric tests may not have radical effects on the obtained probability figure, there is
as yet no general agreement as to what constitutes a "slight" deviation” (Siegel, 1956).
Combining Data
The result of the independent t-test has helped the researcher in combining the two data
sets into a single pooling data set. The t-test supported with Cohen’s d value showed that
there is no big concern about the equality of mean among the two sectors. Based on the
t-test result discussed in Table 4.19, we have presented most of the analysis
comparatively and separately for merchandising, manufacturing, and as a supporting
analysis, pooled data. However, in the case of Perceived growth, since it showed equality
of mean distribution in both the sectors, all the data clearing, reliability, and validity
analysis have made collectively using only the pooled data set.
Hence, the next part of the analysis (Relations Among Categorical variables and
Measures of Growth, Challenges of firm growth, and path analysis are discussed
comparatively, for three of the data cases. Whereas, in the case of part four of chapter
four which discussed data preparation and treatment activities, mostly helped with factor
analysis, have been analysed using only the pooled data set. Because the p-value we have
got in the last t-test (4.19) allowed the researcher to conclude there is a similarity of mean
growth distributions among the two sectors. Thus, combining the two sample cases and
forming one pooled sample would be affected in a concerning way.
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Part II Relationship
4.3 Relations Among Categorical variables and Measures of Growth
In the previous part of this chapter, a univariate analysis of variables was discussed using
a descriptive method of data analysis. The descriptive part of the analysis was comprised
of the growth of the different alternatives of firms and their presumed determining
factors. due to their categorical nature, these independent factors were presented
separately from the Likert scale variable which would be discussed in part IV of this
chapter. In this part, the researcher tried to see the relationship of these categorical
variables with the growth measures of firms considered as dependent variables in this
study. Hence, 27 categorical variables converted into dummies are compared their
relation with the four growth measures (employment, capital, sales, and perceived
growth) in Table 4.20a. below.
The relation among these two kinds of variables (categorical vs continuous) was
calculated in the cross tab function of SPSS software to get a result called ‘eta
coefficient’. This result is equivalent to the correlation coefficient among continuous
variables. Thus the result from this correlation test would be used to identify variables
with a significant correlation coefficient to be included in the regression model. The
correlation coefficient for the categorical variable (eta value) supported with a coefficient
of determination (by calculated squaring the eta coefficient) as suggested by Kennedy,
(1970) is used to identify the significant categorical variable for further analysis in the
SEM.
The identification process of significant relationships among categorical independent and

continuous dependent variables is demonstrated in two separate tables. The first table (i.e.
Table 4.20a), depicts the row relation measure in eta value; while the second Table (Table
4.21a) illustrates the coefficient of determination, which indicates the proportion of the
change in the response variable due to the change in a particular explanatory variable.
4.3.1 Absolute Relations Between Growth Measures and Dummy Factors

The software SPSS has a procedure for calculating a correlation coefficient for
categorical versus interval/ratio variables in its "Crosstabs" function. This function also
includes the value of the chi-square statistic, which is only valid when a specified
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percentage of cells have expected value at least 5. Besides, by squaring the eta value from
the categorical interval, produces eta-squared which Cohen (1988) uses in his equation
for effect size index. Since this statistic is typically reported as part of ANOVA and/or
the chi-square result, the squared eta value is still meaningful even when the equal
variance assumption for ANOVA is violated, or when the expected frequency assumption
for chi-square is not met.
The conventional approach (Schober, Boer, & Schwarte, 2018) to interpreting a

correlation coefficient stated in absolute magnitude eta value is as follows: if the observed
correlation coefficient 0.00–0.10, it would be negligible correlation; if it is measured
0.10–0.39, it would be considered weak correlation; if the eta value is 0.40–0.69, it would
be assumed moderate correlation; if its counts from 0.70–0.89, it would be called strong
correlation; and lastly if it the absolute correlation appeared to be greater than 0.90 with
maximum one it would indicate a very strong correlation.
Another related alternative interpretation was adopted by Brännback, Carsrud, &

Kiviluoto, (2014) from (Shepherd and Wiklund 2009). This interpretation bases power
of the correlation coefficient. And the power of correlation is categorized as follows: high
(r > = 0.5), moderate (r = 0.3 − 0.5), low (r = 0.1 − 0.3), and no (r = < 0.1). Schober’s, et
al., (2018) classification is more detailed than Shepherd and Wiklund’s (2009) correlation
classification. Hence, Schober’s, et al., (2018) classification is used to interpret the eta
value in Table 4.20a below.
According to QMPA quoting Siegel, (1957), interpretation effect size eta coefficient
requires that the interval scaled dependent variable, and the nominal or categorical scaled
independent variables. All growth indicators measured in terms CAGR of sales,
employment, capital, and profit are ratio scale variables while the perception-based
growth indictor was an interval scale variable. This shows all the growth indicators fulfil
ed the minimum requirement of eta coefficient determination, which is interval data-
dependent variables. With regard to the independent variables, all the 27 variables were
nominal scaled variables explained in dummy variables.
Thus, calculation of the eta coefficient takes palace after attaining all the required
assumptions (Cell count not smaller than 5, interval dependent, categorical independent).
Unlike other forms of correlation and association, eta cannot prove causal direction; it
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only measures the level given the researcher's assumption of causal direction
(Quantitative Methods in Public Administration, QMPA, 2012; citing Siegel, 1957).
Table 4.20 Correlation between categorical independent and continuous dependent

variables
Directional Measures: Nominal by Interval (Comparison of effect size using Eta Coefficient)
S.No Categorical Continuous Variables as Dependent
Variables as NEmployGrowth NCapitalGrowth NSalesGrowth N_PGrowth
Independent Mrds Mfg Pooled Mrds Mfg Pooled Mrds Mfg Pooled Mrds Mfg Pooled
a b c d e f g h i j k l
1 Merger_Ex38a .07 .04 .07 .04 .07 .04 .01 .
2 Branch_In20a .07 .03 .03 .07 .03 .03 .07 .03 .03 .11 .01 .06
3 Branch_Out20b .06 .01 .02 .06 .01 .02 .06 .01 .02 .01 .02 .01
4 Crime16a .08 .05 .02 .08 .05 .02 .08 .05 .02 .02 .03 .
5 Crime16b .08 .02 .05 .08 .02 .05 .08 .02 .05 .06 .01 .02
6 Crime16c .01 .05 .03 .01 .05 .03 .01 .05 .03 .01 .04 .02
7 BF_Finance19a .01 .01 .02 .01 .01 .02 .01 .01 .02 .03 .08 .03
8 BR_Finance19b .06 .08 .02 .06 .08 .02 .06 .08 .02 .01 . .01
9 Suported_By20c .08 . .07 .08 . .07 .08 . .07 . .02 .01
10 Support_To20d .03 .04 .03 .04 .03 .04 .02 .02
11 Gender24a .11 .02 .05 .11 .02 .05 .11 .02 .05 .05 .04 .04
12 R_BusiEx_OM27a .03 .12 .07 .03 .12 .07 .03 .12 .07 .02 .08 .04
13 BusinessEx_P28a .03 .09 .03 .03 .09 .03 .03 .09 .03 .07 .02 .02
14 EducFa29a .09 .04 .07 .09 .04 .07 .09 .04 .07 .04 . .02
15 Location36a . .08 .03 . .08 .03 . .08 .03 .05 .02 .04
16 Family_Own37a .07 .12 .03 .07 .12 .03 .07 .12 .03 .07 .03 .01
17 Educated_Vs .01 .05 .04 .01 .05 .04 .01 .05 .04 .02 .03 .02
18 Const_pro .04 .05 .04 .04 .05 .04 .04 .05 .04 .03 .02 .02
19 Food_pro .08 .03 .01 .08 .03 .01 .08 .03 .01 .08 .01 .04
20 Fassion_pro .02 .01 .02 .02 .01 .02 .02 .01 .02 .08 .05 .06
21 PrivateCus17a .04 .05 .02 .04 .05 .02 .04 .05 .02 .04 .03 .04
22 GovCus17a .05 .07 .03 .05 .07 .03 .05 .07 .03 .03 .01 .01
23 High_Interest .03 .03 .03 .03 .03 .03 .03 .03 .03 .09 .08 .09
24 Expr_Finanace . .04 .02 . .04 .02 . .04 .02 . .05 .03
25 Forex .02 . .01 .02 . .01 .02 . .01 .07 .02 .03
26 Inflation .02 .03 .01 .02 .03 .01 .02 .03 .01 .04 .03 .03
27 Devaluation .03 .05 .01 .03 .05 .01 .03 .05 .01 .03 .01 .02
Source: eta value calculated in SPSS Cross tab function and compiled in Excel worksheet
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In this sub-content hence, the relationship between the four growth measures and 27 other
categorical variables is tested in the cross tab function of SPSS so that the eta value would
appear as illustrated in Table 4.20a below. This table indicates the eta value of 27
independent variables concerning the four dependent variables (NEmployGrowth,
NCapitalGrowth, NSalesGrowth, and N_PGrowth). The ‘N’ in the dependent indicates
the transformation of the dependent variable into normalized variables. Besides, these
tables comparatively present the eta value for the merchandising, merchandising, and
combined data of both sectors. Hence, each growth measure has three columns
illustrating the effect size of each nominal variable on the growth of separate and
combined sectors.
The four growth measures are presented in four main columns each representing
merchandising, manufacturing, and pooled data of both sectors. That means there are 12
value columns in Table 4.20a (i.e. 12 columns= 4 dependent variables X 3 sample
categories). Columns a, b, and c in the specified Table depicts the relationship between
change employment growth rate and 27 nominal scaled growth determining factors. The
first and the second columns in this Table deals with how the growth rate in
merchandising and manufacturing sectors separately is related to the change in individual
growth factors. Whereas, the column named ‘pooled’ (column ‘c’ in Table 4.20a)
demonstrates the correlation among the same dependent and independent variables.
The second main columns (sub-columns d, e, f) are representing the correlation of firm
growth measure indicated in terms of capital growth with that of the aforementioned 27
nominal level determinants for the same sample categories. The third column (holding
sub-columns g, h, i) portrays the relationship between sales growth and the 27 nominal
level variables comparing results of merchandising, manufacturing, and pooled data of
both sectors using sales growth. The last column in Table 4.20a (sub column j, k, l)
illustrations the correlation of perceived growth and the aforementioned nominal
variables for the same sample segregations.
The values in these all columns are eta value which is equivalent to Pearson’s ‘r’ in
continuous to continuous correlation analysis. Hence, the interpretation for interval
nominal correlation represented in eta value is the same interpretation with the Pearson’s
r which eta value here will obviously follow the same interpretation as Pearson’s r does.
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Accordingly, the largest correlation observed among growth measures and factors in sub-
column ‘a’ of Table 4.20a, row number 11 which represents correlation among gender
membership and employment growth is about 0.11 eta value. This value is considered by
Schober’s, et al., (2018) in the lower correlation categories. Even though gender appears
to be weakly correlated with the change in the growth of employment growth, still there
needs interpretation of the relationship between the two dependent and independent
variables. Thus, despite a weak eta value, being a firm owned by a male owner will show
better growth tendency than firms owned by gender female. This is for the growth of
merchandising firms indicated in terms of employment growth.
For most of the other correlation coefficients among the change in membership different
factors with that of employment growth for the merchandising sector, the r-value appears
to be insignificant (i.e. from r 0.0- 0.10) correlation. Hence, all the remaining 26 factors
have not significant relationship with the growth rate of employees since the inception of
firms.
Similarly, when we take a look at the column ‘a’ of the Table 4.20a, variables
R_BusiEx_OM27a (relative business experience of owner/manager) and
Family_Own37a (family ownership) appears to be the holders of the highest correlation
value (eta value= 0.12). this value is also in the category of weak correlation.
Nevertheless, the result implies the existence of a weak relationship between having
related business experience of owners and the growth of employees in the manufacturing
sector. Besides, the result indicates that there is a weak relationship between firms owned
by a family and non-family owned firms in the same sector. Except for this result (0.12)
for the two nominal variables, the result of the remaining 26 variables shows that there
only exists no to insignificant relation with the growth of firms measured in employment
growth are since establishment. When the two sectors are combined, eta value 0.01 up to
0.07 resulted from the interval nominal correlation analysis. Unlike the merchandising
and manufacturing sectors by which their growth rates are weakly correlated with gender
for the former and with related experience and family ownership with the later; but after
the data gets combined, it shows an insignificant relationship between employment
growth rate and all the 27 nominal factors.
Growth of firms measured in terms of capital and sales growth rates have also illustrated
a result exactly similar to the relationship discussed for employment growth. Thus,
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gender (being male) have a weak relationship with the change in growth rates of capital
and sales of manufacturing firms. Moreover, the relationship between the variable
R_BusiEx_OM27a (relative business experience of owner/manager) and
Family_Own37a (family ownership) appears the highest correlation coefficient in the
Table (Table 4.20a) and a weak relationship based on criteria (eta value in-between 0.10-
0.39) as stated in (Schober, et al., 2018).
The last main column in Table 4.20a is a column illustrating the result of the correlation
between perceived growth and the aforementioned 27 variables. Like the other columns,
perceived growth shows a correlation of interval nominal variables for merchandising in
columns ‘j’, manufacturing in column ‘k’, and the result of combined data in column ‘l’.
The largest correlation value (eta value 0.11 for the manufacturing sector) resulted from
the analysis of this growth measure is the one as depicted in Table 4.20a, column ‘j’ and
row two. The result of such a correlation denotes that, there exists only a weak correlation
among the two variables.
Generally, being a male business owner for merchandising sector, having related business
experience for both sectors separately, and being a family-owned firm has some sort of
weak relations with the growth of employment, capital, and sales of business enterprises.
Whereas, only the growth of firms in the merchandising sectors has a weak correlation
with perceived growth. as can be observed in Table 4.20a above, no eta value appeared
greater than 0.12 eta values. As to Schober’s, et al., (2018), classification, this result
implies all the interval nominal correlations results are classified as weak or insignificant
relations. After some discussion using eta2 calculation for all the results in Table 4.20a,
categorical variables showed at least a weak correlation with either of the four growth
measures is selected for further analysis in the structural equation modelling in the later
part of this study.
4.3.2 Coefficient of determination eta2

Measuring a relationship with merely a correlation coefficient is sometimes criticized
(Kennedy, 1970; Schober, et al., 2018), for having no obvious intrinsic interpretation and
researchers sometimes report the square of the correlation coefficient. The square of the
correlation coefficient determines the proportion of the change in the response variable
due to the change in a particular explanatory variable. For a better interpretation of the
eta value results in Table 4.20a, (Schober, et al., 2018)) suggested squaring the eta
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coefficient. More explicitly, QMPA, (2012) citing Siegel, (1957) interpreted Eta2 as the
percent of the variance in the dependent variable explained by the independent variable.
In another interpretation suggested by, the squared value for eta is interpreted as the
proportion of variance (PV) accounted for by (Kennedy, 1970) population membership
in a particular group similar to that of Pearson’s r2. When the population means are all
equal, and eta2 = 0, it indicates that none of the total variances is caused due to differences
in population membership (Kennedy, 1970).
Hence this study has attempted to see the association between nominal independent
variables and continuous dependent variables using the squared value of the eta
coefficient which is equivalent to Pearson’s r2 in the conventional correlation analysis.
The correlation coefficient eta value like Pearson’s r2 indicates that the variability of a
continuous dependent variable is accounted for by percentage change in membership of
a particular nominal independent variable in one group (Kennedy, 1970). The more the
correlation coefficient the more the association among the variables.
To support the above notation Table 4.21a illustrates the squared value of the eta
coefficient; which is termed as a coefficient of determination as per Schober, et al., (2018)
and a measure of input for calculating effect size as per Cohen (1988). The coefficient of
determination as stated in the Table was calculated for the merchandising, manufacturing,
and combined data set of the study. In such a way readers can have the ability to compare
the association between these intervals vs continuous variables sector-wise and see the
power of each explanatory variable on the dependent variable.
Table 4.21a as demonstrated below portrays the four growth measures which are
presented in four main columns each subdivided by the sectors (merchandising,
manufacturing, and pooled data of both sectors). Overall this Table shows 12 value
columns (from column a to column k). Columns a, b, and ‘c’ in the specified Table
demonstrates the association between employment growth and the 27 categorical
explanatory variables. The first sub-columns in each main value column (columns a, d,
g, and j) reveals the proportion of employment growth, capital growth, sales growth, and
perceived growth respectively with a change in membership of the 27 independent
categorical variables for the merchandising sector.
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Table 4.21 Table: Comparison of effect size using Coefficient of determination i.e Eta
square (Eta2)
Eta2
Directional Measures: Nominal by Interval (Comparison of effect size using Coefficient
of determination i.e. Eta2)
S.No Categorical
Variables as
Independent NEmployGrowth NCapitalGrowth NSalesGrowth N_PGrowth
Mrds Mfg Pooled Mrds Mfg Pooled Mrds Mfg Pooled Mrds Mfg Pooled
a b c d e f g h i j k l
1 Merger_Ex38a . .005 .002 . .005 .002 . .005 .002 . . .
2 Branch_In20a .006 .001 .001 .006 .001 .001 .006 .001 .001 .013 . .004
3 Branch_Out20b .004 . .001 .004 . .001 .004 . .001 . .001 .
4 Crime16a .006 .002 . .006 .002 . .006 .002 . . .001 .
5 Crime16b .007 . .003 .007 . .003 .007 . .003 .003 . .001
6 Crime16c . .002 .001 . .002 .001 . .002 .001 . .001 .
7 BF_Finance19a . . .001 . . .001 . . .001 .001 .007 .001
8 BR_Finance19b .004 .006 .001 .004 .006 .001 .004 .006 .001 . . .
9 Suported_By20c .007 . .004 .007 . .004 .007 . .004 . . .
10 Support_To20d .001 . .001 .001 . .001 .001 . .001 . . .
11 Gender24a .011 . .003 .011 . .003 .011 . .003 .002 .001 .002
12 R_BusiEx_OM27a .001 .015 .005 .001 .015 .005 .001 .015 .005 .001 .006 .001
13 BusinessEx_P28a .001 .008 .001 .001 .008 .001 .001 .008 .001 .005 .001 .001
14 EducFa29a .008 .002 .005 .008 .002 .005 .008 .002 .005 .001 . .
15 Location36a . .006 .001 . .006 .001 . .006 .001 .003 . .001
16 Family_Own37a .005 .014 .001 .005 .014 .001 .005 .014 .001 .005 .001 .
17 Educated_Vs . .003 .001 . .003 .001 . .003 .001 . .001 .
18 Const_pro .001 .003 .002 .001 .003 .002 .001 .003 .002 .001 . .001
19 Food_pro .007 .001 . .007 .001 . .007 .001 . .006 . .001
20 Fassion_pro . . .001 . . .001 . . .001 .006 .002 .004
21 PrivateCus17a .002 .002 . .002 .002 . .002 .002 . .001 .001 .002
22 GovCus17a .003 .005 .001 .003 .005 .001 .003 .005 .001 .001 . .
23 High_Interest .001 .001 .001 .001 .001 .001 .001 .001 .001 .008 .006 .007
24 Expr_Finanace . .002 . . .002 . . .002 . . .003 .001
25 Forex .001 . . .001 . . .001 . . .005 . .001
26 Inflation . .001 . . .001 . . .001 . .001 .001 .001
27 Devaluation .001 .003 . .001 .003 . .001 .003 . .001 . .
Source: coefficient of determination calculated and compiled in excel eta value generated
from SPSS
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On the other hand, each second column (columns b, e, h, and k) under each growth
measures portrayed in four main columns indicate how the growth rates (measured in
terms of employment, capital, sales, and perceived growth) in manufacturing sectors
separately are related to the change in membership of individual growth factors. besides
each last sub column under every main column (c, f, i, and l) also shows the percentage
of association in the four growth measures as combined sectors respectively with the 27
independent nominal scaled variables.
Accordingly, the highest proportion change observed as demonstrated in Table 4.21a is

1.5% (eta2 = 0.015 row 12, column ‘b’). This percentage change represents that 1.5
percent of the change in the growth rate of employment for manufacturing firms is related
to the manufacturing firms which are established by owners having experience related to
the business organization they operate currently. All the other growth measures for the
manufacturing sector except perceived growth showed a similar result (1.5%). Hence,
having related business experience in the manufacturing sector has more association with
the growth of these firms than the firms in the merchandising sector. Generally, in the
manufacturing sector, 1.5% of the growth in the three growth measures (employment,
capital, and sales) is accounted for by having related business experience before starting
the current business.
With a 0.014 coefficient of determination (see Table 4.21a row 16 columns b, e, and h),
family ownership (Family_Own37a) is also a factor having to be the second observed
association with the three growth measures (employment growth, capital growth, and
sales growth). This indicates that 1.4 percent of the change in these three dependent
variables is related to the change in membership of Family Ownership. Firms owned by
family have more associations than firms do not. This works only for manufacturing firms.
However, conducting the same analysis for the merchandising firms or the combined data
set did not provide similar results as the manufacturing showed. The effect size is lower
for these cases.
The column representing merchandising firms (Table 4.21a, row two, and column ‘j’)
depicts the third-largest effect size (eta2=0.013). This value indicates the percentage
relationship between the perceived growth of merchandising firms and the ownership of
branches inside the country (Branch_In20a) by these firms. Explicitly, 1.3 percent of the
change in growth perception of owners or managers is accounted for by having branch
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firms inside the country. Owners or managers reported they have branches firms
perceived they grow more than the other owners in the merchandising sector. Whereas,
for manufacturing and combined sectors, the result indicates lower perceived growth.
Relatively, the fourth largest effect size portrayed in Table 4.21a is the row indicating the
relationship between owners’ gender (Gender24a) and firms’ growth rate. Row 16 of the
three merchandising columns (columns a, d, g) show similar 0.011 eta2 values. The result
implies that 1.1 percent of growth rates for the firms in the merchandising sector is
accounted for by the membership of the firms to the male gender ownership. Thus, firms
in the manufacturing sector and firms owned by women showed lower or no growth rates
than their counterparts. When the data set was analysed combining both of the tow sample
sector firms, the result revealed a small proportion of relations (eta2 = 0.003) between the
two variables. This result is only for three growth measures (employment, capital, and
sales). Whereas, vis-à-vis perceived growth, the proportion of the relationship between
the two variables is 0.2% for merchandising and combined firms and 0.1% for
manufacturing firms.
There are also some variables correlated by less than one percent proportional
relationship with a particular type of growth measures. These are: losses incurred due to
crime (Crime16b), Access to formal financial services (BF_Finance19a), support from
relatives and friends (Suported_By20c), and InterestRate_18e appeared to be the next
correlated variables with a specific type of growth measures and for a particular sector.
All these variables indicated in the squared nominal-interval correlation analysis,

depicted in Table 4.21a, are variables having a coefficient determination of less than one
percent. For instance, Crime16b explains 0.7 percent (eta2=0.007) of the variation
between itself and all the document-based CAGRs for the merchandising sector.
Similarly, BF_Finance19a explains 0.7 percent (eta2=0.007) of the manufacturing sectors’
perceived growth. Merchandising firms supported by relatives also reveal some sort of
relations with the change in the growth of firms. As can be observed in Table 4.21a,
merchandising firms’ growth rates, support of relatives (Suported_By20c) play a little
role in explaining the growth variation. This can be illustrated by observing the
proportion of stating that 0.7 percent, (eta2=0.007) growth of merchandising firms is due
to having or not having relatives’ support. Taking from the list of challenges in the
subsequent part, a higher interest-rate (InterestRate_18e) was also identified among the
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nominal variables, carrying 0.8 percent for merchandising and 0.07 percent (eta2=0.008
and 0.007) proportion of relationship with perceived growth of merchandising and pooled
data of both sectors respectively. Most of the remaining categorical variables have
proportions around 0.1 percent and with few other relations weight less than 0.6 percent.
Overall, Table 4.20a and 4.21a indicate that a change in membership of specific nominal
variables out of the 27 variables analysed is related by some proportion of the growth
alternative rates. Except for a weakly correlated few variables, all of them were not found
related to the change in growth rates of most firms. Hence, only six of these dummy
variables (Business experience, Related business experience, sectors food processing,
and fashion industry, lack of foreign exchange, devaluation of the currency, Access to
financial institutions, are included in the SEM as will be discussed in the later parts of
this chapter. The next part will discuss how respondents evaluate the challenges of their
firms of which few were included in this part for interval nominal correlation analysis.
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Part III Challenges of Firm Growth
4.4 Challenges of Merchandising and Manufacturing Sector
Based on the very objective of this study, (which is to make a comprehensive firms’
growth model), it is obvious to find out a list of challenges which supposed to impact the
growth of firms. Consequently, several works of researchers including (Fisman, &
Svensson, 2007; Lee, et al., 2016; Hartono, & Kusumawardhani, 2019) have been
consulted and their suggestions were utilized in identifying and determining new growth
model. Using variables considered in the literature constraints to the growth of business
enterprises, several studies throughout the world have investigated the challenges of firms
while conducting growth studies in the field of organizational growth. For instance,
researchers including (Getahun, 2016; Amentie, eta al., 2016; Kibret, et al., 2015), from
Ethiopia; study by (Okpara, & Wynn, 2007), from Nigeria; growth studies conducted in
Uganda by (Fisman, & Svensson, 2007); several others have tried to integrate constraints
into their firms’ growth model. In building a comprehensive growth model, the researcher
identified and analysed 28 number of business obstacles. Thus, the subsequent topics
will discuss how respondents do evaluate the challenges of business around their
environment.
The result of the descriptive statistics on the challenges of the manufacturing and
merchandising business of the study is demonstrated in the appendix part (Appendix 2.2
A, B, and C) of this study. The form in which the data to process the ranking of challenges
based on their severity was conducted. have been processed in SPSS separately, and
compiled in an excel sheet to show a complete view of all the challenge related variables
of the study. The ordinary regression was conducted forming new data from these results.
1=Not_C, not considered a challenge; 2=Min_C, have a minimum challenge; 3=Mod_C,

exert moderate challenge; 4=Sev_C, a Severe challenge; and 5=V.Sev_C, a Very Severe
challenge
4.4.1 PLUM - Ordinal Regression

One of the dimensions prescribed in the model development part of this study was
integrating business barriers into the growth model. Accordingly, a large number of
challenges that have been identified during the review part of this research were included
178
in the growth model so that all possible number of business obstacles be controlled before
analysing factors of business growth. Overall, about 28 number of business challenges
have been identified from the literature and they were included in the survey. All these
challenges are related to markets, finance, technology, economy, and others which are
believed among the scholars as obstacles of business operation or growth.
Due to technical reasons, the growth model cannot accommodate including all the
challenges in a single SEM. Trying to include all variables might cause overfitting of the
model. To avoid this problem, the researcher attempted to prioritize the challenges based
on their severity. This in turn comes with a requirement for a separate data analysis
method which needs ranking the challenges for prioritization purpose.
Accordingly, an ordinary regression method using the descriptive result (frequency of

responses for every challenge) of the challenges and the rate and sample size) was used
to put the challenges in their perceived severity order. The ordinary regression as will be
discussed in this part of the study was conducted using the newly created data set from
the descriptive result of the challenges demonstrated in appendixes 2.2A, 2.2B, and 2.2C.
Specifically, new variables have been created using the 1) the five-point Likert’ scale
category as a rate variable (dependent), the frequency of each ordinary levels as a count
variable to weight the challenge based on the count, and 28 categories of challenge
variables as an independent variable to prepare ranking order of challenge rated towards
more severely. In doing so totally, each challenge category was repeated five times which
is the same as the ordinal scales from one to five-point scales; representing that the
challenge extends from not considered as an obstacle to a very severe obstacle. The new
data set then comes with 140 cases (28 variables X 5 level of scale). The following three
Tables are prepared for merchandising, manufacturing, and pooled data set of both
sectors separately. In such a way, which challenge would be perceived among the owners
and managers more severe obstacles to growth would be ranked comparatively.
Proportional Odds (Ordinal Regression) for Merchandising Sector

There are several types of ordinal logistic regression models. Probably, the most
frequently used ordinal logistic regression model in practice according to Hosmer,
Lemeshow, & Sturdivant, (2013) is the constrained cumulative logit model (called the
proportional odds model). To rank the number of challenges based on the perceived rates
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given by the respondents, this study adopted the constrained cumulative logit model,
using the PLUM function in SPSS.
Before conducting the ordinary regression (cumulative odds ordinal regression with
proportional odds), the researcher checked if the assumptions to conduct such kind of
regression supports these 28 variables with their dependent variable (rate one to five).
For ordinary regression to take place, it is suggested (Laerd Statistics 2020), there needs
to satisfy four assumptions. The first assumption is that the dependent variable should
have to be ordinary. second if the independent is not continuous or categorical variables
(i.e. if they are ordinary data), they should have to first convert into dummy variables.
Thirdly, there should not exist multicollinearity among the independent variables. And
lastly, the assumption for proportional odds should have to be fulfil ed.
The first and second assumptions are satisfied with observing the DV and IV variables.
The ordinary type IV of this study are transformed into 27 dummy variables. Hence both
of the first two assumptions were satisfied. The third assumption needs to test the
multicollinearity test. One way to measure multicollinearity is the conducting regression
analysis to get a variance inflation factor (VIF). This test evaluates how much the
variance of an estimated regression coefficient increases if the predictors are correlated
with each other. If no factors are correlated, the VIFs will all be 1. But if the VIF is
greater than 1, the predictors may be moderately correlated. The output for of
multicollinearity test shows that the VIF for the challenges among each other is below
1.5, which indicates some correlation, but not enough to be overly concerned about. A
VIF between 5 and 10 indicates a high correlation that may be problematic. And if the
VIF goes beyond 10, you can assume that the regression coefficients are poorly estimated
due to multicollinearity. Hence, no Variance Inflation Factor (VIF) above the concern
level of (2.5) was recorded in the study (Ho, 2006) exposing to multicollinearity
(Appendix 2.2D). Coming to the fourth assumption, it was not conducted due to its
complexity which may cause to flag violations that do not exist. Hence, the model was
conducted without checking this assumption. Nevertheless, not all assumptions are
mandatory (Laerd Statistics 2020) to conduct cumulative odds ordinal regression with
proportional odds. Hence, the analysis was conducted having fulfil ed all the
aforementioned three assumptions.
180
Two type model tests: one as a model fitting test and the other as an omnibus test of
statistical significance were performed before starting interpretation and discussion of the
rank of the challenges. The model fitting test explains that whether the severity rates are
better explained by the proportional odds (ordinary regression) using the list of challenges
as predictor variables than not using those challenges. Showing chi-Square static
acceptable with a significant p-value level (ᵡ2=385.97, p=0.000) the ordinary regression
model for merchandising firms appeared to better than the non-model. Rejecting the null
hypothesis that states the ordinary regression model is not better than the null model, the
model fit information allows the researcher to interpret the result of proportional odds
(ordinary) regression as stated in the subsequent Tables.
In addition to showing separate significant levels for every variable, the study also tried
to see the result of the overall significance level of the ordinary regression model for the
merchandising industry. The overall test of significance was conducted using Wald’s
omnibus test of statistical significance (Laerd Statistics 2020). Such kind of test is
required to provide an overall test of statistical significance for any categorical
independent variable with three or more groups. Since this model have five categories
(from list severe to very severe), it was necessary to conduct an omnibus test of the
significance level. The test based on Wald’s Chi-Square test was generated using the
SPSS syntax function.
Accordingly, the test for the merchandising sector indicates that the model is very
significant (i.e. Wald’s Chi-Square=383.409, p=000) which allows the researcher to
continue interpretation and discussion of the ranked business challenges. A similar
omnibus test of statistical significance was conducted for the manufacturing and the
combined sectors. The result indicates that the model can be conducted and interpreted
for showing a significant Wald’s test for both. The omnibus test of statistical significance
for the manufacturing sector is (ᵡ2=272.372 at p=0.000), while the combined sectors
show a significant test of statistical significance (ᵡ2=630.869 at p=000).
Generally, interpretation and discussion of the ranked challenges are possible for all the
sample groups. The result of the logit link function test of the overall level of significance
is demonstrated in appendix 2.2D. On the other hand, the goodness-of-fit test for all three
sample cases rejected the null hypothesis that the ordinary regression model base on the
logit link function is different from the presumed perfect mode. Besides the test of the
181
parallel line in all cases rejected the null hypothesis states that the location parameters
(slope coefficients) are the same across response categories. Nevertheless, considering
the significant level measured in Wald’s Chi-Square, the researcher preferred to continue
working on the model interpretation and discussion.
The ordinary regression model from SPSS based on the logit link provides a figurative
parameter estimate which poses some difficulty for interpretation. Hence, the parameter
estimate result required further conversion into an easily interpretable magnitude. Such a
magnitude for the logit link-based parameter estimate is changed into odds-ratio. This
magnitude is converting from logit based results into odds-ratio using the exponential
result of the estimates.
For the logit link alternative of ordinary regression, the cumulated odds ratio tells that the
unit of times that a particular challenge rate higher or lower for the set of rating scales.
Raking of the perceived challenge would be eased using this odds ratio as a tool of
comparison.
The odds ratio is another measure of association for 2 × 2 contingency Tables Agresti,
(2019). The odds are nonnegative, with a value greater than 1.0 when success is more
likely than a failure and in between zero and when success is less than the likelihood of
success.
The figure in the estimate column indicates the direction of the relation between the
severity rate (dependent variable) and the particular challenge (independent) compared
to the baseline challenge. Accordingly, the positive value indicated that a particular
challenge is considered by the owners or managers more severe challenges than that of
the baseline challenge (challenge 28). While negative estimate value indicates the
reverse. Since the logit based estimate with its upper and lower estimate values are
transformed into cumulated odds ratio (columns J, K, and L) most of the interpretation
will be based on the cumulated odds ration values on the last four columns of Table 4.22a-
4.24a. The interpretation will also be supported with Wald’s statistic and test of individual
significance level as depicted in middle (columns E and G) of all the three Tables. The
last column (column M) shows the rank of the challenge based on it severity. The higher
the rank the severe the challenge to growth of firms according to the perception of
respondents (managers and owners of the firms). Interpretation of the cumulated odds
182
ratio was conducted based on the interpretation of Agresti, (2019), Laerd Statistics
(2020), and Hosmer, et al., (2013).
The first four rows of every ranking Table are devoted to the dependent variable which
is the tendency of respondents to rate from one to five based on their perception of the
severity of the challenges. The 28 rows below these rows are going to be interpreted
against these threshold values. Hence, in the discussion hereafter, the row starts from the
beginning of the challenges, represented from C=1 up to C=28 in column B of the three
coming Tables (Table 4.22a-4.24a).
The higher interest-rate charged by the financial institution (Intrest_Rate18e) was ranked
first as a challenge of business growth. The result for these variables is depicted in row
C=5 of the ordinary regression table. As is demonstrated in Table 4.22a, the odds of
business owners or managers considering interest-rate to be too severe challenge grow
was 1.14 (95% CI, .92 to 1.41) times that of lack of government support
(LGov_Support18ab) rated as severe. However, the result was not statistically significant
(Wald χ2 = 1.470, p = .225). Even though it was not statistically significant, the rank
shows a higher interest-rate perceived a top (see column’ row C=5) challenge among the
28 business barriers under study.
The second perceived challenge among the 28 variables for the merchandising sector is
the continuous devolution of currency (Develuation18l). The variable (as stated in the
row C=10 of Table 4.22a) indicates that the odds of respondents perceiving currency
devaluation as severe challenges is 1.11 (95% CI, .9 to 1.37) times that of the baseline
variable (i.e. luck of government challenge). This implies that the challenge of a
continuous devaluation of currency for the merchandising firms is 11 percent worse than
the challenge of lack of government support. Even though the magnitude seems greater
challenge compared to LGov_Support18ab, the statistical significance level not as
significant (i.e. Wald χ2 = .887, p = .346) as it should support the difference between
these two challenges.
Gebregziabher, (2019) Since October 2017, the Ethiopian Birr in the informal sector is
under rapid continuous devaluation. Nevertheless, the birr value in the National bank
stays overvalued even after the government initiated devaluation. Whereas businesses in
the real market are suffering from a continuous devaluation of the currency.
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Table 4.22: Parameter Estimates of ordinary regression for Merchandising Sector
Description 95%
Confidence
Cha. Rank
Interval
Exp. Exp. Exp. Exp.
Estim Std. Lower Upper Esti Low Exp.
ate Error Wald df Sig. Bound Bound mate er Upper
A B C C D E F G H I J K L M
[R= 1] Not a Challenge -1.127 .078 211.576 1 .000 -1.279 -.975 .28 .38
[R= 2] Minor Challenge -.151 .077 3.833 1 .050 -.301 .000 .74 1.
Threshold
[R= 3] Moderate Challenge .567 .077 54.100 1 .000 .416 .718 1.52 2.05
[R= 4] Severe Challenge 1.878 .079 559.205 1 .000 1.722 2.034 5.6 7.64
Location
[C=1] Mkt_Acces18a -.348 .109 10.251 1 .001 -.561 -.135 0.71 .57 .87 18
[C=2] Mkt_Demand18b -.255 .108 5.527 1 .019 -.468 -.042 0.77 .63 .96 14
[C=3] Expor_Acces18c -.248 .108 5.215 1 .022 -.460 -.035 0.78 .63 .97 13
[C=4] Cash_Flow18d -.098 .108 .820 1 .365 -.310 .114 0.91 .73 1.12 10
[C=5] Intrest_Rate18e .131 .108 1.470 1 .225 -.081 .343 1.14 .92 1.41 1
[C=6] Non_InterBank18g -.152 .108 1.966 1 .161 -.364 .060 0.86 .69 1.06 11
[C=7] High_Collateral18p -.054 .108 .253 1 .615 -.267 .158 0.95 .77 1.17 6
[C=8] LesExpe_F.Intr18q -.054 .108 .253 1 .615 -.267 .158 0.95 .77 1.17 7
[C=9] Price_Volatility18k -.069 .108 .409 1 .522 -.282 .143 0.93 .75 1.15 8
[C=10] Develuation18l .102 .108 .887 1 .346 -.110 .314 1.11 .9 1.37 2
[C=11] Shortage_FX18m .055 .108 .262 1 .609 -.157 .267 1.06 .85 1.31 4
[C=12] Informal_Comp18h -.766 .110 48.812 1 .000 -.981 -.551 0.46 .37 .58 27
[C=13] Comp_NonVAT18i -.696 .109 40.454 1 .000 -.910 -.482 0.50 .4 .62 25
[C=14] Entrep_Overload18f -.313 .109 8.290 1 .004 -.525 -.100 0.73 .59 .9 16
[C=15] Poor_Accouting18j -.332 .109 9.363 1 .002 -.545 -.119 0.72 .58 .89 17
[C=16] Org_Structure18y -.361 .109 11.065 1 .001 -.574 -.148 0.70 .56 .86 19
[C=17] Keep_Tech18o -.495 .109 20.635 1 .000 -.708 -.281 0.61 .49 .76 20
[C=18] Get_Tech18t -.623 .109 32.547 1 .000 -.837 -.409 0.54 .43 .66 22
[C=19] Tax Rate18n -.924 .110 70.155 1 .000 -1.140 -.708 0.40 .32 .49 28
[C=20] Location18r -.699 .109 40.786 1 .000 -.913 -.484 0.50 .4 .62 26
[C=21] Inv_Supply18s -.638 .109 34.080 1 .000 -.852 -.424 0.53 .43 .65 24
[C=22] Contraband18u -.093 .108 .742 1 .389 -.306 .119 0.91 .74 1.13 9
[C=23] Policy_Instablilty18v -.626 .109 32.880 1 .000 -.840 -.412 0.53 .43 .66 23
[C=24] Keep_Q_Personnel18w -.171 .108 2.477 1 .115 -.383 .042 0.84 .68 1.04 12
[C=25] Regu_Complexi18x .070 .108 .416 1 .519 -.142 .282 1.07 .87 1.33 3
[C=26] Plotical_Instability18z -.520 .109 22.748 1 .000 -.733 -.306 0.59 .48 .74 21
[C=27] Informal_Pay18aa -.264 .108 5.929 1 .015 -.477 -.052 0.77 .62 .95 15
[C=28] LGov_Support18ab 0a . . 0 . . . 5
Link function: Logit.
a. This parameter is set to zero because it is redundant
Source: Column A to Column I except column C is calculated in SPSS ordinary
regression; Columns J, to Column M, was calculated in R and Excel.
184
The result in our case that owners and managers rated devaluation as a second severe
challenge among 28 other challenges to the growth of their business gets the support of
the Gebregziabher, (2019) finding.
The third challenge as can be observed in column M of Table 4.22a is the variable in row
C=25. This variable indicates the perception of owners and or managers towards the
severity of complexity of rule and business regulations (Regu_Complexi18x) in the
country. With CI 95% the odds of how respondents in the merchandising sector believe
that complexity of regulation affects growth of their businesses is 1.07 (with a minimum
odds ratio of .87 and maximum 1.33). The difference in severity between the baseline
challenge and regulation complexity is not significant (Wald χ2 = .416, p = .519).
According to this result, complexity of regulation outweighs lack of government support
only by 7 percent.
The regulatory environment in Ethiopia is under continuous evaluation and amendment

for a long time (Essays, UK. November 2018). Such unsTable business regulations in
turn might cause owners and managers to lose time to follow up every change came and
cope up with new regulations. The finding supports the resent essay submitted regarding
the severity of challenges in Addis Ababa (Essays, UK. November 2018).
Shortage of foreign exchange (Shortage_FX18m) is considered the fourth barrier of

business growth among the 28 growth barriers. Shortage_FX18m is depicted in row
number C=11 of Table 4.22a. showing an insignificant result (Wald χ2 = .262, p = .609)
the cumulated odds of respondents from the merchandising sector is 1.06 (95% CI, .85 to
1.31) times the odds of lack of government support. The result indicates that even though
it is insignificant the difference in perceived severity of the two challenges
(Shortage_FX18m and LGov_Support18ab) is about six percent. More clearly, owners
and or managers of the merchandising firms believe that shortage of foreign exchange is
a severe barrier of growth than lack of government support.
The incident that the foreign currency shortage comes next to the rank of continuous
currency devaluation gives logical support to the result. The shortage of currency by its
very nature implies a shortage of supply and consequently higher demand for the foreign
currency which in turn leads to higher prices for the currency. That may be the cause that
both challenges ranked consecutive in the merchandising sector.
185
The fifth barrier identified from the cumulative odds ordinal regression with proportional
odds in Table 4.22a is the baseline variable (LGov_Support18ab). Lack of government
support appeared the fifth barrier of growth among 28 variables included in the ranking
model. All the remaining challenges are considered by the owners and managers of
merchandising firms as small challenges compared to the barrier lack of government
support. For instance, the lowest challenge ranked 28th challenge is higher tax rate
(Tax_Rate18n) as can be seen in row number C=19 of Table 4.22a. The odds of owners
and managers considering tax rate as a severe challenge is .40 (95% CI, .32 to .49) times
that of lack of government support (LGov_Support18ab). Putting it more clearly, with a
significant (Wald χ2 = 70.155, p = .000) value, lack of government support is perceived
in the merchandising sector 60 percent more severe challenge than that of the higher tax
rate do.
In general, Table 4.22a demonstrates a list of challenges ranked up to 28th challenge by

the owners and managers of merchandising firms. Challenges ranked 12th up to 28th are
significantly different from the baseline challenge (i.e. LGov_Support18ab). Whereas,
for barriers ranked from 6th to 11th, even though they show severity below the lack of
government challenges figuratively, their magnitude did not signify significantly
different results from the baseline challenge. Thus, variables related to higher collateral
for borrowing (High_Collateral18p, ranked 6th), lack of experience in financial
intermediaries (LesExpe_F.Intr18q, ranked 7th), unsTable market price
(Price_Volatility18k, ranked 8th), competition from smuggled goods in the market
(Contraband18u, ranked 9th), shortage easy cash flow (Cash_Flow18d, ranked 10th), and lack
of interest-free banking (Non_InterBank18g, ranked 11th) are among the severe
challenges considered by the owners and managers of firms in the merchandising sector.
The total responses for the severity level moderate and below for the baseline challenge
(i.e. LGov_Support18ab) among 536 respondents is 323 (not challenge=148 + minor=94
+ moderate=81). Figures taken from the descriptive result are demonstrated in Appendix
2.2A for the merchandising sector. This indicates that 60 percent of respondents are
considering the lack of government support (LGov_Support18ab) imposes a moderate
challenge to the growth of their businesses. Only 40 percent of them perceive that it can
impact the growth of their businesses severely and worse. Referring to this descriptive
186
result, less than 40 percent of the respondents are perceiving that these barriers can affect
the growth of their business enterprises severely and worse.
Overall, five variables (Intrest_Rate18e, Develuation18l, Shortage_FX18m,

Regu_Complexi18x, and LGov_Support18ab) appeared to be among the top severe
challenges to the growth of merchandising firms. From an economic point of view
interest-rate, currency devaluation, and shortage of foreign exchange are related
challenges. Appearing in a relative rank order denotes their relativeness in financial
economics. On the other hand, the two other challenges concerning regulation complexity
(Regu_Complexi18x) and lack of government support (LGov_Support18ab) are related
to the government’s role in the growth of firms in the merchandising sector. Managers
and owners perceived that the current business regulations are complex. This creates
further complexity into the mostly uneducated (i.e. only around 16 percent have college
certificate and above). See the merchandising sector column of Table 4.5. in the
descriptive part of the study. Aggravated with lack of government support the complexity
of the business regulations is ranked third challenges of all the 28 barriers identified from
the literature.
Proportional Odds (Ordinal Regression) for Manufacturing Sector

Similar to the comparative presentation followed since the start of the analysis, the
ranking of the challenges was also presented in the same manner. Hence, this subsection
deals with the ranking of growth barriers as perceived by the owners and managers of
firms in the manufacturing sector.
Three barriers that appeared among the top five challenges in this section are similarly
ranked in the top five barriers by the owners and managers of firms in the merchandising
sector. interest-rate, devaluation of the currency, and shortage of foreign currency were
among the top five for the previous sample. In addition to these three challenges price
volatility (Price_Volatility18k) and less experience in financial intermediary
(LesExpe_F.Intr18q) emerged among the top five growth barriers.
Continuous devaluation of currency (Develuation18l) in Addis Ababa is ranked as

challenge number one, among the 28 number of growth barriers listed in Table number
4.19 below. This conclusion is supported by the odds ratio result in row C=10 of the
stated Table. Accordingly, the odds of owners and managers perceiving continuous
187
devaluation as a major challenge is 1.18 (95% CI, .95 to 1.47) times the odds of the same
to the lack of government support (LGov_Support18ab). The result implies that the
difference between giving a higher rate for continuous devaluation and lack of
government support is about 18 percent (i.e. devaluation is rated 18% higher business
challenge compared to LGov_Support18ab). However, their difference is not significant
(Wald χ2 = 2.122, p = .145). even though it does not show a significant difference with
the baseline challenge (i.e. lack of government support), continuous devaluation of
money is considered among the top challenges of firms in the manufacturing sector.
Price volatility was ranked as the second barrier to the growth of firms in the
manufacturing sector. Table 4.23a, row number C=9 depicts all the parameters regarding
the relationship between the two challenges (price volatility and the baseline variable).
As can be observed in this row of the table, the odds of owners and managers perceiving
price volatility is worse than the lack of government support is 1.14 (95% CI, .92 to 1.42).
With an insignificant value (i.e. Wald χ2 = 1.383, p = .240) the result indicates that price
volatility is considered around 14 percent severe than LGov_Support18ab.
Markets frequently affected by the continuous devaluation of currency are susceptible to

price instability. Hence, the coincidence that brings these two related variables in
consecutive rank order (first and second severe challenges), might lead readers to see if
there is a causality between themselves. Essentially, both these variables (currency
devaluation and price volatility) can be attributed to economic challenges. Hence, it is
expected that owners and managers rated these variables in a comparative severity
ranking.
Owners and managers have also stated their less experience in financial intermediaries.
This variable was rated as a third most serious challenge compared to the 28 barriers of
firm growth. Comparing with challenge number 28 (i.e. less government support), less
experience in financial intermediaries is considered among the respondents 10 percent
more severe (see Table 4.23a, row C=8). Nonetheless, the result of rank difference with
challenge 28 is not significant (i.e. Wald χ2 = .731, p = .394). Putting the idea
figuratively, the odds of experience to financial intermediaries is 1.10 times the odds of
less government support. With a 95% confidence interval, the minimum and maximum
odds of the barrier are .88 to 1.37 times the base variable (less government support).
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Table 4.23 Parameter Estimates of ordinary regression for Merchandising Sector
95% Converted into
Confidence Odds Ratio
Interval
Rank
Estim Std. Exp. Exp.
Esti
und
und
mat
wer
per
Up
Ex
Ex
Bo
Ex
Bo
Lo
p.
p.
p.
e
ate Error Wald df Sig. Lower Upper
[R= 1] -.992 .080 153.80 1 .000 -1.149 -.835 0.37 .32 .43
Threshold
[R= 2] -.048 .080 .364 1 .546 -.204 .108 0.95 .82 1.11
[R= 3] .687 .080 74.054 1 .000 .530 .843 1.99 1.7 2.32
[R= 4] 1.887 .082 529.014 1 .000 1.726 2.048 6.60 5.62 7.75
ion
cat
Lo
[C=1] Mkt_Acces18a -.107 .112 .914 1 .339 -.327 .113 0.90 .72 1.12 12
[C=2] Mkt_Demand18b -.249 .112 4.935 1 .026 -.469 -.029 0.78 .63 .97 16
[C=3] Expor_Acces18c -.247 .112 4.838 1 .028 -.467 -.027 0.78 .63 .97 15
[C=4] Cash_Flow18d -.010 .112 .008 1 .931 -.229 .210 0.99 .8 1.23 7
[C=5] Intrest_Rate18e .059 .112 .274 1 .601 -.161 .278 1.06 .85 1.32 4
[C=6] Non_InterBank18g -.078 .112 .479 1 .489 -.297 .142 0.92 .74 1.15 9
[C=8] LesExpe_F.Intr18q .096 .112 .731 1 .393 -.124 .315 1.10 .88 1.37 3
[C=9] Price_Volatility18k .132 .112 1.383 1 .240 -.088 .351 1.14 .92 1.42 2
[C=10] Develuation18l .163 .112 2.122 1 .145 -.056 .382 1.18 .95 1.47 1
[C=11] Shortage_FX18m .047 .112 .173 1 .677 -.173 .266 1.05 .84 1.3 5
[C=12] Informal_Comp18h -.603 .113 28.413 1 .000 -.825 -.381 0.55 .44 .68 26
[C=13] Comp_NonVAT18i -.544 .113 23.215 1 .000 -.766 -.323 0.58 .46 .72 23
[C=14] Entrep_Overload18f -.215 .112 3.674 1 .055 -.435 .005 0.81 .65 1.01 14
[C=16] Org_Structure18y -.344 .112 9.337 1 .002 -.564 -.123 0.71 .57 .88 19
[C=17] Keep_Tech18o -.443 .113 15.420 1 .000 -.663 -.222 0.64 .52 .8 21
[C=18] Get_Tech18t -.509 .113 20.325 1 .000 -.730 -.288 0.60 .48 .75 22
[C=19] Tax Rate18n -.587 .113 26.951 1 .000 -.809 -.366 0.56 .45 .69 25
[C=20] Location18r -.569 .113 25.360 1 .000 -.791 -.348 0.57 .45 .71 24
[C=21] Inv_Supply18s -.661 .113 34.012 1 .000 -.884 -.439 0.52 .41 .64 28
[C=22] Contraband18u -.101 .112 .815 1 .367 -.321 .118 0.90 .73 1.13 11
[C=24] Keep_Q_Personnel18w -.279 .112 6.154 1 .013 -.499 -.058 0.76 .61 .94 18
[C=25] Regu_Complexi18x -.099 .112 .782 1 .376 -.319 .121 0.91 .73 1.13 10
[C=27] Informal_Pay18aa -.134 .112 1.429 1 .232 -.354 .086 0.87 .7 1.09 13
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This variable can be categorized into the financial challenges of firm growth. In a country
with a less developed banking sector, firms may face severe challenges getting loans and
other necessary banking services. In such a condition, if there is no access to financial
intermediaries the firms may fail short of financing their projects on which their growth
is based. This might be why the variable ranked a third severe challenge among the entire
list of challenges in this study.
The fourth severe challenge as can be observed in Table 4.23a row C=5 is the interest-
rate. Interest-rate, which is also related to the banking sector is considered a six percent
more severe challenge than the challenge of less government support. Numerically, even
though it showed insignificant (i.e. Wald χ2 = .274, p = .601) result, the odds of owners
and managers considering an interest-rate more severe are 1.06 (95% CI, minimum .85
to maximum 1.32) times the rate they give to the LGov_Support18ab. Hence, owners and
managers perceived higher borrowing rate causes among the top obstacles the growth of
firms in the manufacturing sector.
interest-rate was among the challenges which, both firms in the merchandising and
manufacturing sectors are sharing with. In the former, interest-rate was ranked as a
challenge number one, while in the second it is considered the fourth barrier of growth.
both interest-rates and access to financial intermediaries are attributed to financial
challenges. Their coexistence in a related ranking level supports that firms are facing
more challenges from the finance-related obstacles than the other obstacles. comparing
the two sectors (merchandising and manufacturing), interest-rate for the merchandising
sector is considered a more severe obstacle to growth than for the manufacturing sector.
Because in the former, the obstacle ranked first severe barrier, while in the later, it was
ranked fourth severe challenge.
Coming to the fifth obstacle of growth to the manufacturing sector, we found a shortage
of foreign exchange (Shortage_FX18m) in the front. With insignificant difference (i.e.
Wald χ2 = .173, p = .677), the odds of owners and managers perceiving that the variables
Shortage_FX18m more severe challenge are 1.05 (95% CI, .84 to 1.30) times that of the
variable LGov_Support18ab. This means, the odds of respondents rating this challenge
as a more severe barrier is five percent above their tendency to rate LGov_Support18ab.
The insignificant Wald’s chi-square test indicates that a shortage of foreign exchange to
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the growth of manufacturing firms is at least as much severe as the challenge of less
government challenge.
All these five challenges (Intrest_Rate18e, LesExpe_F.Intr18q, Price_Volatility18k,

Develuation18l, and Shortage_FX18m) are considered more or less more severe
challenges than the baseline challenge in the ordinary regression model
(LGov_Support18ab). However, since the difference is not significant, it is better to see
other challenges in the model considered less severe than this baseline challenges with
an insignificant difference. Lack of government support (LGov_Support18ab), shortage
of cash flow (Cash_Flow18d), a requirement of high collateral for a loan
(High_Collateral18p), lack of interest-free banking alternative (Non_InterBank18g), the
complexity of regulations (Regu_Complexi18x), existence competing of smuggled goods
(Contraband18u), getting access to market (Mkt_Acces18a), and role overload of
entrepreneurs (Entrep_Overload18f) are challenges ranked from the 6th to 12th severe
barriers of growth manufacturing firms respectively (see Table 4.23a).
Proportional Odds (Ordinal Regression) for Pooled Sectors

In order to see ranks of challenges in comparatively, responses of the owners and
managers from the manufacturing and merchandising sector have been analysed
separately. However, it is not known what would look like the ranking order of the
challenges if the data becomes like a single data set. Will the challenges ranked in the top
five for the separate data stay the same as the top challenges for the combined sample?
To answer this question there need to create a pooled data set for another ranking of
challenges in the proportional odds ratio analysis. Having a result for the specific sector
separately and looking at the result for the combined data substantiates our understanding
of the most severe challenges of the firms. The parameters in Table 4.24a as can would
be discussed as follow are therefore analysed from this point of view.
The estimated figures in the Estimate column (column ‘C’ of Table 4.24a), depict the
related direction of that particular challenge against challenge 28th (which is Lack of
government support). The rate starts from one representing a challenge is not an obstacle
to their business growth to five, which is they perceived a particular challenge impacts
growth of their firms severely. Positive estimates in this particular column mean that the
variables are considered lower challenges compared to challenge 28 which is the base for
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comparison. In such an interpretation this approach helps to the rank perceived challenges
in their severity order.
The exponential value of each estimate in the estimate column was then transformed into
exponential for so that the result in the estimate column which was calculated based on
logit link becomes interpreTable in percentage change. Because exponential for of the
logit figure becomes a cumulated odds ratio of the challenges failing into the severity
scales. These ratios indicate that a magnitude of the ratio being failed into either of the
five levels of perceived challenges. As a result, the cumulated odds ratio in column ‘J’ of
Table 4.24a below specifies, that the unit of times that a particular challenge is rated
higher or lower from the five-point rating scales. Since ranking in their severity order can
help the interpretation, the rank of all the challenges based on their severity is stated in
the last column of the same table.
There are five positive results in the estimate (column ‘C’) column of Table 4.24a below.
This indicates owners and managers of the manufacturing and merchandising firms
considered these challenges more severe impact on the growth of their firms, compared
to the baseline challenge (i.e. LGov_Support18ab). The challenges identified the top five
severe challenges in the manufacturing sectors and three out of the top five in the
merchandising sector appeared to be similar challenges when the data of both sectors
combined.
Devaluation of currency represented as Develuation18l in Table 4.24a is ranked as the

most severe of all challenges both by manufacturing and merchandising firms. The odds
ratio result as stated in row C=10 of the stated Table 4.24a supports this notation.
Accordingly, the odds of owners and managers in both the manufacturing and
merchandising sector, perceiving that continuous devaluation of currency causes a
negative impact to the growth of their businesses is 1.14 (95% CI, .98 to 1.33) times that
of the obstacle called lack of government support (LGov_Support18ab). The result
implies that the difference between giving a higher rate for continuous devaluation and
lack of government support is about 18 percent (i.e. devaluation is rated 14% higher
business challenge compared to LGov_Support18ab). However, their difference is not
significant (Wald χ2 = 2.879, p = .090). Even though it shows an insignificant difference
with the baseline challenge (i.e. lack of government support), continuous devaluation of
money is considered among the top challenges of firms in both of the target sectors.
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Taking the combined data set, the second severe challenge of the model becomes a high
borrowing interest-rate (Intrest_Rate18e). This challenge is located in row C=5 of Table
4.24a hereunder. As can be observed this row, the odds of respondents considering
interest-rate more severe is 1.10 (95% CI, .95 to 1.28) times that of challenge 28
(LGov_Support18ab). Hence, owners and managers perceived that the higher borrowing
rate causes more obstacles the growth of both sectors is greater than how they ranked the
other 26 obstacles included in the model. The insignificant (Wald χ2 = 1.585, p = .208)
exponential value (1.10) indicates that the challenge is 10 percent more severe to growth
than the severity might come, to the firms, due to lack of government support.
interest-rate was among the challenges which, both firms in the merchandising and
manufacturing sectors have shared as a top challenge of their growth. In the former
interest-rate was ranked as a challenge number one, while in the second it is considered
the fourth barrier of growth. Whereas when the data combined it is ranked as second-
most of all the challenges in the model.
Low-cost financial sources are believed to impact the growth of firms positively. Because
firms having access to low-cost funds have fewer expenses which in turn retains net
income greater than those having higher cost financial sources. The result for firms in
Addis Ababa shows the borrowing cost of loans is affecting the growth of firms more
than any other challenges except the devaluation of the currency, which is a greater
obstacle than all challenges in the model.
Table 4.24 Parameter Estimates of ordinary regression for Merchandising Sector

Transformed
95% into Odds
Confidence Ratio
Cha. Rank
Std. Error
Estimate
Wald
Interval (exponent)
Sig.
df
Exp. Exp Exp.

Bound
Bound
Lower
Upper
Esti . Upp
mate Low er
er
[R= 1] -1.060 .056 362.577 1 .000 -1.169 -.951 0.35 .31 .39
[R= 2] -.100 .055 3.257 1 .071 -.208 .009 0.90 .81 1.01
Threshold
[R= 3] .626 .055 127.302 1 .000 .517 .734 1.87 1.68 2.08
[R= 4] 1.882 .057 1088.519 1 .000 1.770 1.994 6.57 5.87 7.34
ion
cat
Lo
[C=1] Mkt_Acces18a -.230 .078 8.668 1 .003 -.382 -.077 0.79 .68 .93 14
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[C=2] Mkt_Demand18b -.251 .078 10.329 1 .001 -.404 -.098 0.78 .67 .91 16
[C=3] Expor_Acces18c -.247 .078 10.046 1 .002 -.400 -.094 0.78 .67 .91 15
[C=4] Cash_Flow18d -.054 .078 .483 1 .487 -.207 .098 0.95 .81 1.1 8
[C=5] Intrest_Rate18e .098 .078 1.585 1 .208 -.055 .250 1.10 .95 1.28 2
[C=6] Non_InterBank18g -.115 .078 2.164 1 .141 -.267 .038 0.89 .77 1.04 11
[C=8] LesExpe_F.Intr18q .020 .078 .064 1 .801 -.133 .172 1.02 .88 1.19 5
[C=9] Price_Volatility18k .030 .078 .151 1 .697 -.122 .183 1.03 .89 1.2 4
[C=10] Develuation18l .132 .078 2.879 1 .090 -.020 .284 1.14 .98 1.33 1
[C=11] Shortage_FX18m .051 .078 .430 1 .512 -.101 .203 1.05 .9 1.23 3
[C=12] Informal_Comp18h -.686 .079 75.866 1 .000 -.840 -.532 0.50 .43 .59 27
[C=13] Comp_NonVAT18i -.621 .079 62.413 1 .000 -.775 -.467 0.54 .46 .63 23
[C=14] Entrep_Overload18f -.264 .078 11.444 1 .001 -.417 -.111 0.77 .66 .89 17
[C=16] Org_Structure18y -.352 .078 20.294 1 .000 -.505 -.199 0.70 .6 .82 19
[C=17] Keep_Tech18o -.468 .078 35.672 1 .000 -.621 -.314 0.63 .54 .73 20
[C=18] Get_Tech18t -.566 .078 52.062 1 .000 -.720 -.412 0.57 .49 .66 22
[C=19] Tax Rate18n -.758 .079 92.196 1 .000 -.913 -.603 0.47 .4 .55 28
[C=20] Location18r -.635 .079 65.139 1 .000 -.789 -.481 0.53 .45 .62 25
[C=21] Inv_Supply18s -.648 .079 67.770 1 .000 -.802 -.493 0.52 .45 .61 26
[C=22] Contraband18u -.096 .078 1.527 1 .217 -.249 .056 0.91 .78 1.06 10
[C=24] Keep_Q_Personnel18w -.219 .078 7.855 1 .005 -.371 -.066 0.80 .69 .94 13
[C=25] Regu_Complexi18x -.011 .078 .021 1 .884 -.164 .141 0.99 .85 1.15 7
[C=27] Informal_Pay18aa -.200 .078 6.556 1 .010 -.352 -.047 0.82 .7 .95 12
Coming to the third challenge of firms’ growth, a shortage of foreign exchange

(Shortage_FX18m) was found in the front. The result for Shortage_FX18m is
demonstrated row C=11 of Table 4.24a above. As the parameters in that particular row
of column ‘J’ show, the odds of managers or and owners considering Shortage_FX18m
as a more severe challenge is 1.05 (95% CI, .90 to 1.23) times that of the
LGov_Support18ab. However, the difference is not significant (i.e. Wald χ2 = .430, p =
.512). despite its insignificant value, the magnitude of the difference in percentage form
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is the perception of owners and managers towards a shortage of foreign exchange as a
severe challenge is about five percent above they perceive about the severity they think
lack of government support caused impact on their business. But, if we take the
insignificant level as no difference, the insignificant Wald’s chi-square test indicates that
shortage of foreign exchange is as much a severe challenge as having less government
support.
Price volatility for the pooled data was ranked fourth among the 28 challenges in the
model. Table 4.24a, row number C=9 depicts all the parameters regarding the relationship
between the two challenges (price volatility and the lack of government support). As can
be observed in this row of the result, the odds of owners and managers perceiving price
volatility is worse than lack of government support is 1.03 (95% CI, .89 to 1.20). In terms
of severity, with an insignificant value (i.e. Wald χ2 = .151, p = .697), the result indicates
that price volatility is considered around three percent worse compared to
LGov_Support18ab.
Markets frequently affected by the continuous devaluation of currency are susceptible to

price instability. Hence, putting these two related variables among the top severe
variables is supporting the theory that they change together. Essentially, both these
variables (currency devaluation and price volatility) can be attributed to economic
challenges. Because of their background attributed to, it is expected that owners and
managers rated these variables in close ranking level.
The last challenge stated in this table is a lack of sufficient experience in financial
intermediaries (LesExpe_F.Intr18q). Owners and managers of both the manufacturing
and merchandising sectors have rated the challenge as a five most serious challenge
compared to the 28 barriers of firm growth in the proportional odds ratio model. Putting
the rank figuratively, the odds of owners and managers considering less experience in
financial intermediaries is 1.02 times that of having no or less government support. At a
95% confidence interval, the minimum rating is .88 times the benchmark variable, while
the maximum is 1.19 times the same variable. Nonetheless, the two percent difference in
severity compared to the poor government support was not supported in a significant (i.e.
Wald χ2 = .064, p = .801) level. Therefore, we can conclude having less experience in
financial intermediaries is considered more or less, an equivalent barrier to the growth
firms in both sectors with that of having poor government support.
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Like higher interest-rate, less experience in financial intermediaries can be categorized
into the financial challenges of firm growth. In countries with a less developed banking
system like Ethiopia, firms may face serious challenges of getting fewer cost loans and
other necessary banking services. In such a condition, if there is no access to financial
intermediaries the firms may fail short of financing their projects on which their growth
is based.
All these five challenges (Develuation18l, Price_Volatility18k, LesExpe_F.Intr18q,

Shortage_FX18m, and Intrest_Rate18e) are considered more or less more serious
challenges than that of having less/poor government support (LGov_Support18ab).
However, since the difference is not significant, it is better to see other challenges in the
model considered less severe than this baseline challenges.
Accordingly, challenges stated in the Table with an insignificant value are rated by far
and large at a similar rate level compared to the Lack of government support. Variables
rank order to seventh to rank order 11 have shown slit difference compared to the baseline
variable (LGov_Support18ab) which is in the sixth rank order of severity. The seventh to
11th severe challenges which have got odds ratio little below LGov_Support18ab are
Regu_Complexi18x 7, Cash_Flow18d, High_Collateral18p, Contraband18u, and
Non_InterBank18g respectively.
Most of the variables identified as serious challenges of all the 28 variables in the separate
analysis of merchandising, manufacturing, and combined sectors appeared to be more or
less similar variables. Hence, variables identified in the top five challenges in all of the
three cases and some variables that appeared among the top five for a particular data set
was decided to be included in the structural equation modelling stage of the analysis.
Accordingly, five challenges considered more serious to the growth of firms have been
transformed into two category dummy variables and tested for a relationship with all the
dependent variables in the interval nominal correlation test in the cross tab function of
SPSS. The name of the challenges after transformation appeared to be higher interest-
rate (High_Interest), less experience to financial intermediaries (Expr_Finanace),
shortage of foreign exchange (Forex), Price volatility (Inflation), and continuous
devaluation of currency (Devaluation). Challenges found significantly correlated with
some of the dependent variables were included in the SEM, in the later parts of the data
analysis.
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Part IV Data Preparation for SEM and Path Analysis
Five variables from the relationship analysis in part II of this chapter with some other
five variables from the challenges part (part III) from the previous analysis have been
identified to include them in SEM analysis in part V below. However, there are also
factors of growth identified in the review part as the main part of the model. These factors
are constructed from different items presumed to measure the same interest. Hence, one
of the objectives in this p mart of the analysis is to show how the growth factors, explained
in terms of Likert scale measure fulfil the requirement of the construct to be included in
an SEM. The other issue in this part is to verify the model against the required
assumptions and model adequacy.
Overall, this part of the analysis as discussed in content number 4.5, and 4.6 discussed
data preparation processes including reliability, validity, and several other tests of
assumptions while content number 4.7 presents the result of SEM with their necessary
tests. Testing the impact of these different variables include variables which have been
identified in part one and two of this chapter. Combining these selected variables with
the Likert scale variables as would be discussed in this part are used to create the
multivariate analysis in the structural equation modelling.
4.5 Uni-Dimensionality of Factors (Dealing with Measurement)
One of the rationales for undertaking this study was to fill the gap that asserted the
existing firm growth studies are underestimating the model. Because not all possible
variables and constructs are included in the growth models. Hence, this study tried to
bring as many variables and constructs as possible so that users of the study will have a
one step forward in having a comprehensive understanding of the firm growth study. In
doing so, the study collected and several variables and constructs from the literature.
Using this detailed list of variables and constructs the researcher tried to estimate if the
variation in the growth of firms is attributable to the variation of these variables.
Some of the variables were measured at an interval level, while others were attributed to
categorical (nominal and ordinal). Items presumed to explain a specific sort of variable
such as the interval scaled items (all the dependent and others interval scaled variables),
nominal items (such as the variables discussed in part one and two of the data analysis of
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this chapter), and some ordinal variable (e.g. challenges discussed in part three of chapter
four) as presented separately in the previous parts stands alone to represent a variable.
However, there are special items that could not stand by themselves to explain a separate
interest. These types of items can only represent a variable if they get pooled forming
Liker’s scale. This part deals with how the Liker’s scale type measures were treated
before forming the growth model.
Several studies have suggested that Likert scales can be analysed effectively as interval
scales (see, for instance, Brown, 2011; Baggaley & Hull, 1983; Maurer & Pierce, 1998;
and Vickers, 1999). With certain ‘sensible’ preconditions, (Allen and Seaman 1997;
Brown, 2011) support treating Likert scale data as interval data: such as the scale item
should have at least five and preferably seven categories and such a construct should be
built from at least a combination three items.
Consequently, this study started data analysis using 125 items with such kind of
characteristics as which have been identified in the review part of the study. The
collection of such a large number of items from different studies and databases needs
refinement from repetitions and including unnecessary variables in the model. Not all
these items might be equally important in determining the firm growth model it is going
to be discussed. Hence, multiple stages of the refinement process have been conducted to
identify the most efficient and effective number of constructs required to determine the
structural equation model.
Hence, this part of the study focussed on the treatment of these 125 items in such a way
that they become ready for data analysis in the structural equation modelling combined
with the dummy variables prepared and tested in part two of chapter four. One of the
treatments which need to be discussed here is how many of these items can explain the
structural equation modelling. To do so, the study employed three consecutive steps so
that the model can have a strong explaining power. This is made such as by excluding
unnecessary variables from it and verifying the unidimensionality of such constructs.
The steps of verifying the unidimensionality of the measurement were performed using
results from conducting parallel analysis (Patil, Singh, Mishra, & Donavan, 2017),
Exploratory Factor Analysis (EFA), and confirmatory factor analysis (CFA). All these
three data reduction mechanisms permit the researcher 1) to reduce a large number of
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unnecessary items from the model, 2) assure reliability items, 3) verify the validity of
items and constructs. Detail analysis of these three data reduction mechanisms are related
to the verifying the overall data whether or not it is free of serious measurement errors as
it is going to be discussed in the subsequent subsections.
I) Retaining of Constructs Using Parallel Analysis and EFA

In order to determine the number of factors, retention rules such as parallel analysis are
preferable to methods such as the Henson & Roberts’s, (2006) Screen test or the
Eigenvalue larger than one rule (Horn, 1965, Ziegler, & Hagemann, 2015). Supporting
this suggestion, Gaskin, & Happell, (2014) contends that the common methods used in
the literature to identify factors within exploratory factor analysis are potentially
problematic. As a result, they suggested a new “a state of the art” approach believed can
resolve the issues in exploratory factor analysis. Hence, conducting a parallel analysis in
Monte-Carlo simulation methods before exploratory factor analysis is a useful step in the
process of identifying factor structure. According to Gaskin, & Happell, (2014) parallel
analysis “enables researchers to have a high degree of confidence in the number of factors
to extract before exploratory factor analysis”.
Hence, prior to the dimension reduction by the factor analysis, six variables have been
removed from in the initial (131 items) factor analysis. This was due to that they showed
low reliability (in the priory reliability analysis) and showing some disturbance to the
EFA analysis. Thus, the factor analysis was conducted using 125 items: External
Locus5e, External Locus5g, Fatalistic3f, Extraversion3g, TechTurbulence10h,
TechStability10i
Out of the three forms of data refinement measures (parallel analysis, exploratory factor
analysis, and confirmatory factor analysis) parallel analysis was used to support the result
of the data reduction result from EFA. Exploratory factor analysis (EFA) is a method of
data reduction for such kind of large variables. This method of analysis helps to retain
variables which presumed to have better explaining power to a regression model than
others. To select from the result of EFA there needs some subjective judgment as to where
to cut the required number of constructs from the screen plot. Due to this drawback, it is
better to support EFA (Patil, et al., 2017) with a more precise measure which can
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objectively show the cutting point among the list of items set ready for analysis. This
process is performed with the help parallel analysis (PA) so that it could help the
researcher to decide on the number of items which should be continued in the subsequent
analysis. Calculation of both PA and EFA has been performed for the three data sets
separately: i.e. an EFA and PA for the manufacturing, the merchandising, and the pooled
data set.
The Parallel Analysis was performed online PA platform while the EFA was calculated
in SPSS software. The PA for all the data sets was conducted separately using 125 Likert
type items, 100 iterations, at 95th percentile of Eigenvalues which is the default percentile
in PA with a seed value of 1000.
The sample size used in conducting the PA was 502 cases for manufacturing, 536 for the
merchandising sector, and 1038 cases for the pooled data set. In order to retain the
required number of factors for the firm growth model, the study combined eigenvalues
resulted from the online PA and EFA. All these combined Tables are presented in
appendix 3 of the study separately for every data set (Appendix 3A for manufacturing,
3B for Merchandising, and 3C for combined dataset).
Table 4.25 Number of components retained comparing results of EFA vs PA

Sample Eigenvalue Cumulative Reference
alternative (Percentile for Variance
Factors PA) Explained
2 3 4 5 6 7
PA EFA PA EFA PA EFA
Manufacturing 20 30 1.61 1.69 62.93 73.38 Appendix 3
Merchandising 21 31 1.57 1.63 64.28 73.85 Appendix 3
Pooled Dataset 23 30 1.38 1.47 64.7 70.98 Appendix 3
Source: The PA portion calculated in the online Monte-Carlo simulation engine, and the
EFA portion calculated in the Principal component analysis section of SPSS 25 and
arranged in excel
Before combining the data set to form a single data set for analysis, a comparison was
conducted among the results of the separate analysis based on sector and combined
dataset. Making such a separate analysis enables the researcher: first to validate the
200
consistency of relations among variables when the cases are changed; secondly, the
variables by observing if variables loaded together in the merchandising enterprises could
show the same loading in the merchandising enterprises. Whereas the need for EFA in
the pooled data is to compare and see if still the variables loaded together in either of the
data set or both of the data set separately have the same loading when the two data set
combined to form a pooled data set of the two sectors.
Thus, after conducting the EFA in SPSS software it was necessary to decide how many
optimal components (constructs) should have to be retained so that the growth model
wouldn’t be over-specified or in the reverse, it misses necessary components. Because a
screen-plot test and eigenvalue above one might lead extract a large number of an
unnecessary number of components due to their subjective nature. As it is stated in the
source part of Table 4.25a, the Parallel analysis (PA) has been conducted in the online
Monte-Carlo simulation. This engine calculates eigenvalues from randomly generated
correlation matrices (Patil, et al., 2017).
The optimum number of factors were retained for further analysis from the randomly
generated data in the simulation. The percentile eigenvalues generated in the simulation
then was used to compare with the eigenvalue generated in EFA. This process was
performed for all three sample alternatives (the manufacturing sector, the merchandising
sector, and pooled datasets). Having both eigenvalues from the two processes, the study
used the diminishing point as criteria to decide on the cutting point for retaining the
optimal number of components for the study. The diminishing point is a point at which
the eigenvalue generated from the real datasets starts to be lower than the percentile
eigenvalue from the randomly generated eigenvalues in Monte-Carlo simulation (Horn
1965; Patil, et al., 2017). Taking only the optimal number of factors for further analysis
reduces the over-specification redundancy of unnecessary complications. An over-
extraction of more factors than necessary would complicate analysis with no or
insignificant value addition (Patil, et al., 2017) for the variation in the dependent
variables.
As can be seen in columns four and five the eigenvalues for the real data (column 5 of
Table 4.25a) are the last eigenvalues, after which the eigenvalue of EFA result started to
diminish below the percentile eigenvalue of the PA (column 4 of Table 4.25a). Hence,
20 factors for the manufacturing, 21 factors for the merchandising sectors, and 23 factors
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for the combined dataset (column 2 of Table 4.25a) were retained for further analysis in
the confirmatory factor analysis (CFA). Initially (in the EFA) the number of components
extracted has been 31 for the merchandising dataset and 30 for both the manufacturing
and pooled datasets (column 3 of Table 4.25a).
As can be observed in columns six and seven of Table 4.25a, the cumulative explaining
power of the components extracted based on the real data have a higher percentage (73.38
percent for manufacturing, 73.85 percent for merchandising, and around 70.98 percent
for pooled data) than that of the power of the components extracted from the Monte-Carlo
simulation (i.e. around 62.93 percent for manufacturing sample, around 64.28 percent
merchandising sample, and 64.7 percent in the case of the combined sample).
Even though, the explaining power of the components recommended based on the PA
found to be lower than the explaining power of the real data, in terms of reducing
complexity and over a specified model, both Horn (1965) and Patil, et al., (2017),
suggested the result based on the simulated data as an optimal way of extracting
components for analysis.
To include factors not extracted in the manufacturing sector while they have been
extracted in the merchandising sector, the study used the result of the combined data set.
Hence, to make the study safer, it used the extraction of 23 factors from the pooled dataset
for further analysis. The next topic discusses using the process and result of the reliability
analysis, factor analysis, and structural equation modelling using 23 factors.
II) Reliability analysis

Several studies have suggested that data measured in the form of Likert scales can be
analysed effectively as interval scales (see, for instance, Brown, 2011; Baggaley & Hull,
1983; Maurer & Pierce, 1998; and Vickers, 1999). With certain sensible preconditions,
Allen and Seaman (1997) also support treating Likert scale items as interval scale data.
These preconditions are: the items should have to have five to seven categories and
should be a combination of items that can measure the same concept called “construct”.
The criteria to form a construct is a similarity of the attribute of the data, not of the labels.
However, there is a strong caveat to this approach: researchers such as Brown, (2011)
insist that such combinations of scales should pass the Cronbach’s alpha or the Kappa
test of inter-correlation and validity other measures of inter-correlation.
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To provide an adequate measure of a particular attribute, a test must at least invariably
assign scores. Methods of defining, estimating, and increasing tests of reliability,
therefore, are extremely important and have been the focus of a great deal of research for
decades. “Reliability is an assessment of the degree of consistency between multiple
measurements of a variable. The most commonly used measure of reliability is internal
consistency, which applies to the consistency among the variables in a summated scale.
The rationale for internal consistency is that the individual items or indicators of the scale
should all be measuring the same construct and thus be highly inter-correlated” (Hair,
Black, Babin, & Anderson, 2014, pp. 123).
Because no single method of reliability gives a perfect measure of a concept, we must

rely on a series of diagnostic measures to assess internal consistency. (Hair, et al., 2014).
Several related diagnostics can be used in such an evaluation of modes. In this study, we
employed a Reliability Coefficient (Cronbach’s Alpha), Composite Reliability, and
Average Variance Extracted Estimate (AVE) measures of internal consistency. The
results of each method are summarised in Table 4.26a below demonstrating the result of
the reliability analysis before and after CFA had been conducted.
Reliability Coefficient (Cronbach’s Alpha): assesses the consistency of the entire

scale, with Cronbach’s alpha being the most widely used measure (Hair, et al., 2014) of
reliability. The generally agreed-upon lower limit for Cronbach’s alpha is .70 although it
may decrease to .60 in exploratory research (Murphy, & Davidshofer, 1988); Hair, et al.,
2014). theyThe acceptance level of reliability according to is reliability unacceptable: if
it is less than .6 Cronbach’s alpha value; low reliability: if it has .7 Cronbach’s alpha
value; moderate to high reliability: if it shows .8-.9 Cronbach’s alpha value; and lastly,
high reliability: if reliability greater than .9 Cronbach’s alpha value
Based on these suggestions reliability analysis was conducted in SPSS 25 before and after
all forms of factor analysis have been completed. Immediately, after retaining the
optimum number of constructs using the parallel analysis, the reliability analysis was
conducted for 23 constructs formed from 108 Likert scale type items. The result of this
analysis is depicted in Table 4.26a below. As can be seen in the Table, column ‘C’ shows
the reliability coefficient when we take 108 items to build 23 constructs. At this level of
reliability analysis, all the items appeared in between .76 to .95 Cronbach’s alpha value.
This value according to Hair, et al., (2014), lies in a moderate to high-reliability category.
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No concern was found at this level regarding consistency at least to proceed through the
subsequent steps of the study. Hence, CFA was conducted using 108 items which formed
23 constructs for further tests.
However, assessing reliability with Cronbach’s alpha comes with its drawback. It could
be affected by the number of items forming a construct. The more the items are included
in a construct the more the relationship will be among the items. By increasing the
number of items, even with the same degree of inter-correlation, the reliability value
increases. Hence, researchers such as Hair, et al., (2014) suggested using stringent
measure internal consistency. By using a combination of the criteria (i.e., coefficient
alpha, composite reliability, and AVE), scales can be developed efficiently without
sacrificing internal consistency (Netemeyer, et al., 2003). As a result, two more measures
of internal consistency (composite reliability and average variance explained) in this
study were employed and discussed next.
Composite (Construct) Reliability: a measure of the internal consistency of items in a

scale, analogous to coefficient alpha but mostly used in CFA. It can be thought of as
being equal to the total amount of true score variance relative to the total scale score
variance (Brunner & Süß, 2005). Although thresholds for composite reliability have been
advocated e.g., .70 by Hair et al (1998) and .60 by Bagozzi and Yi (1988) cited in
Netemeyer, et al (2003), the number of items in the scale must be considered. Table 4.26a
column A demonstrates the result of composite reliability calculated during the
confirmatory factor analysis. The measurement model during the CFA started with 23
constructs until the model identified only 16 of those constructs which satisfied all the
reliability and validity tests. Actually, in this step, both measurement models demonstrate
CR value greater than .70 which according to Brunner, & SÜβ, (2005) is satisfactory to
consider a measurement is reliable.
As can be seen in the Table the construct registering the lowest CR value for the 23-
factor solution is the family orientation (CR of Family_Ori=.76) while the highest CR for
the same factor solution resulted in the Org_Learning scale which weighs .95 CR.
Overall, 16 factors out of the 23-factor solution have CR values in the range of .76 to .89,
which can be categorized as moderately reliable scales. The seven factors ranged from
.90 to .95 CR values, which is considered a highly reliable scale. Composite reliabilities
for the 16 facto solution was also ranged from .75 for the Formalization scale to .95 for
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the scale representing Org_Learning (Table 4.26a, column A). Nine of the scales in the
16-factor solution have CR values in the range of from .75 to .89. All values are above
the benchmark CR .70 (Brunner, & SÜβ, 2005).
Table 4.26 Different Measures of Internal Consistency

Average Cronbach’s Number of
Composite
Construct Variance alpha (CA) Items in a
Reliability
Factor Name Explained Factor
(CR)
Number (AVE)
A B C D
23F 16F 23F 16F 23F 16F
23F 16F
1 Mark_Orient .93 .93 .72 .72 .93 .93
5 5
2 Formalization .79 .75 .43 .50 .79 .75
5 3
3 Futurity .85 .85 .54 .54 .85 .85
5 5
4 P_Growth .92 .92 .70 .70 .92 .92
5 5
5 G_PrepNeed .88 .84 .51 .56 .88 .84
7 4
6 Aggressive .80 .77 .50 .52 .80 .77
4 3
7 Innovativeness .80 .50 .80
4
8 Manuficience .89 .74 .88
3
9 Reskiness .77 .46 .77
4
10 RiskTaki .87 .87 .70 .70 .87 .87
3 3
11 Proactive .85 .85 .59 .59 .85 .85
4 4
12 Org_Learning .95 .95 .87 .87 .95 .95
3 3
13 Dynamism .90 .91 .57 .61 .90 .90
7 6
14 P_Efficiency .88 .84 .51 .56 .88 .84
7 4
15 Gov_Regu .90 .90 .60 .60 .90 .90
6 6
16 Competency .85 .51 .88
6
17 So_Network .87 .89 .63 .72 .87 .88
4 3
18 Gov_Servi1T .91 .92 .68 .74 .91 .92
5 4
19 Gov_Servi2T .91 .91 .67 .67 .91 .91
5 5
20 Trust .88 .88 .64 .64 .88 .88
4 4
21 Corru_Ori .83 .56 .83
4
22 Family_Ori .76 .44 .76
4
23 Bu_Network .80 .51 .80
4
Total Items 108 67
Sources: CR and AVE were calculated in AMOS 24 during CFA, while CA was
calculated using the Principal component analysis of SPSS 25 during EFA.
Average Variance Extracted Estimate (AVE): With the advent of structural equation
modelling, other tests of internal consistency or internal structure/stability became
available. A more stringent test of internal structure/stability involves assessing the
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amount of variance captured by a construct’s measure in relation to the amount of
variance due to measurement error the average variance extracted (AVE). AVE assesses
the amount of variance captured by a set of items in a scale relative to measurement error.
A rigorous level of .50 or above has been advocated for AVE (Fornell & Larcker, 1981)
cited in (Netemeyer, et al., 2003). Given the calculation of AVE below, this corresponds
to an average completely standardized item loading of about .70. For newly developed
scales, values near the .50 threshold > .45 (Netemeyer, et al., 2003).
The calculation and interpretation of AVE become easy with the help of Gaskin’s & Lim,
(2016), CR and AVE results from a specifically developed plugin into the AMOS
software. Table 4.26a, column B demonstrates the result of AVE from that process which
suggests the researcher remove factors not found reliable and valid according to the AVE
criteria. Based on the recommendations from the process testing the 23 factors have been
performed repeatedly until the measurement model satisfied all the requirements of a
model. Lastly, from the repeated process of testing factors for reliability and validity, the
result came out with 16 reliable factors.
The AVE result presented in Table 4.26a is the result of the factors at the beginning when
the factors were 23 and at the last of the process, when the measurement model found
reliable and valid (last 16 factors). In the middle, there have been more than four rounds
of test and retesting process removing factors with lower AVE values (less than .5). Based
on the threshold stated by (Fornell & Larcker, 1981) cited in (Netemeyer, et al., 2003),
and Gaskin’s & Lim, (2016) factors found below the criteria were removed from the
initial measurement model. At the initial stage, one item form Formalization (with AVE
value of .43), Reskiness (with AVE value of .46), Family_Ori (with AVE value of .44),
were the first scales to be removed in the first test of the measurement model.
After testing and retesting the measurement model starting with 23 factors formed of 108
items, Formalization appeared with three items removing two non-reliable ones;
G_PrepNeed emerged with four items, removing three; Aggressiveness reduced to four
items removing one unreliable; Gov_Servi1T retained 4 out of five times; Dynamism
stands at 6 items removing only one; while So_Network emerged with 3 items removing
only one. On the other hand, Innovativeness, Reskiness, Corru_Ori, Family_Ori,
Bu_Network (each built up from 4 items), Manuficience (formed out of 3 items), and
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Competency (formed with 6 items), could not satisfy the requirement of the measurement
model. Thus, these factors were removed from the model.
In the end, the model emerged with 16 new constructs built up from 67 items which are
illegible to be included in the structural model of the study. Removal of the scales from
the measurement model was performed with a repeated test of the measurement model
until suggested by Gaskins’ plugin as a reliable model. In the process of testing reliability
and validity scales formed with less than three items had been removed due to the consent
that factors formed from two or one items could not be considered as an interval scale.
Hence, the seven factors removed from the measurement model are because they show
low AVE value at every test of construct reliability in the measurement model. After the
removal of the seven factors, which had been found not reliable in the measurement
model, the model emerged with 16 reliable factors formed from 67 items.
III) Factor Analysis (EFA and CFA)

As discussed in the parallel analysis part of this part of the thesis, EFA was conducted
multiple times. That is Because there was a need to retain the optimum number of factors
at the initial step when there was no clear number of factors stated for confirmatory
analysis in the theory of business growth. As can be seen in the review part of the study,
several factors have been collected from different studies having different views of
business growth. Thus, there was critical need for a single comprehensive view about the
growth of the business enterprises. That is why this study employed EFA and CFA
together to see how the combination of items and the constructs they tend to explain in
the literature are conform to their respected constructs. Hence, this topic discussed how
the process of data reduction was taking place.
In the initial stage of EFA (just before extracting the optimal number of factors using the
parallel analysis), the researcher excluded two items from the factor analysis which
tended to explain the construct business network. These two items were excluded from
the analysis due to their greater cross-loading in two different factors. The item
Business_Net12h showed a loading of 0.81 in factor 10 and loading 0.64 in factor 30 in
the factor analysis of 125 items. While item Business_Net12e displayed a loading of 0.71
in factor 10 and loading of 0.67 in factor 30 of the 125 items principal component
analysis. After removing the two items the Cronbach’s alpha value .801 was displayed a
measure of reliability with four business network items. The result was above the
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minimum (0.7) Cronbach’s alpha which indicates (Cronbach, 1951) to proceed to the
subsequent analysis.
Initially, the analysis started with 125 items and go through CFA processes with 108
items, and lastly, after several data reduction procedures, ended up with 67 tested reliable
and valid factors. Hence, after several removals of items, which have not been found
either reliable or valid during the EFA plus CFA, the measurement model emerged with
a 16-factor solution as can be depicted in Table 4.27a. The first three column states the
name of the factor which are listed downward, the result of Cronbach’s alpha measured
after CAF determined the optimum number factors and side by side the list of items built
the construct. Regarding CA, all the results show that there is no reliability concern in
the measurement model.
Next to these columns in Table 4.27a, the diagonally cascading numbers are standardized
lodgings of EFA, showing how the theoretically defined constructs in CFA conform
statistically to the presumed factor when they tested again in a forced (to extract 16
factors) principal component analysis. The extraction method was Principal Component
Analysis. With the Promax rotation method and Kaiser Normalization.
Table 4.27 Reliability and Validity Measures

Pattern Matrix, Crombache's Alpha (CA) of Reliability Analysis and Factor Loadings of
CFA
♦ Component (16 factors) ⸗ ● *
Const CF
ructs CA Items 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 AL A
.9 Cu_Heterog10k .89 .82 .8
ComIntensity10l .85 .82
ComIntensity10m .84 .84
Dynamism
ComIntensity10n .83 .76

Cu_Heterog10j .8 .76
MrktDyna10g .68 .72
.9 15b_Foreign trade .91 .8 .81
15c_Employment .91 .86
15d_Health &
Safety .85 .76
Gov_Regu
15e_Tax
Regulations .77 .78
15a_Get Licenses .7 .7
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15g_Foreign
Currency .68 .71
.93 MrktOrient5h .91 .88 .88
MrktOrient5i .9 .88
Mark_Orient
MrktOrient5j .89 .85

MrktOrient5k .86 .8
MrktOrient5g .83 .85
.92 PerGrowth1d .9 .87 .84
PerGrowth1b .88 .82
P_Growth
PerGrowth1c .88 .89

PerGrowth1e .87 .85
PerGrowth1a .8 .79
.91 14h_Court .89 .85 .84
14g_Chamber .89 .88
Gov_Servi2T
14i_Tax Office .88 .87

14b_Qua_Certifica
tn .85 .81
14d_Customs .74 .66
14c_Transportatio
.92 n .9 .89 .88
Gov_Servi1T
14f_Security .9 .87
14a_Municipality .88 .85
14j_Electricity
(Power) .88 .83
.85 Futurity1h .8 .79 .75
Futurity1g .8 .73
Futurity1i .8 .73
Futurity
Futurity1j .79 .73

Futurity1f .78 .73
.88 Trust11c .87 .84 .83
Trust11a .85 .76
Trust11d .84 .81
G_PrepNeed Trust
Trust11b .81 .8
.84 Need4Achievem6e .83 .81 .81
Need4Achievem6f .81 .76
Need4Achievem6d .8 .7
Need4Achievem6g .79 .73
.85 Proactive8a .9 .82 .8
Proactive8b .82 .74
Proactive
Proactive8d .8 .79
Proactive8c .75 .73
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.95 Org_Learning9i .99 .95 .97
Formaliza Aggressiv RiskTaki So_Netw P_Efficiency Org_Lear

Org_Learning9h .98 .96
ning
Org_Learning9f .89 .86
.84 PersEfficacy7d .83 .79 .79
PersEfficacy7b .81 .74
PersEfficacy7e .78 .7
PersEfficacy7c .75 .78
.88 Social_Net12g .92 .89 .92
Social_Net12i .91 .86
ork
Social_Net12f .85 .76

.87 RiskT_Prop3b .9 .89 .84
RiskT_Prop3a .89 .84
RiskT_Prop5c .88 .83
.76 Aggressive2g .83 .82 .74
Aggressive2h .82 .71
Aggressive2e .82 .71
e
.75 Formalization4d .8 .8 .7
Formalization4b .8 .66
tion
Formalization4e .79 .76

Extraction Method: Principal Component Analysis. Rotation Method: Promax with Kaiser
Normalization.
a. Rotation converged in 7 iterations.
Sources:
♦Cronbach’s alpha (CA) value calculated in reliability analysis SPSS 25, discussed in
Table 4.26a
●Average loading (AL) calculated by averaging the EFA loading of every item to their
respected constructs in an excel sheet
*CFA is standardized item loading of confirmatory factor analysis of every item to its
respected construct, which was calculated using Gaskin, & Lim, (2018), "Merge SRW
Tables", AMOS Plugin. Gaskination's StatWiki. (demonstrated figure 4-22 and in
Appendix 3.C.III)
⸗The group of loadings cascading downward are statistically determined EFA loading of
items to their respected constructs as per the statistics provided, not based on the priory
stated construct.
The Kaiser-Meyer-Olkin (KMO) statistic is a Measure of Sampling Adequacy, both

overall and for each variable (Kaiser 1970; Cerny and Kaiser 1977; Dziuban & Shirkey,
210
1974, Gaskin, & Happell, (2014). KMO values greater than 0.8 can be considered good,
i.e. an indication that the proportion of items and sample size with the degree of freedom
there created is sufficient to conduct EFA was useful for these variables. Bartlett's Test
on the other hand measures significance of the difference between the correlation of the
variables and that of identity matrix (a matrix of ones in the diagonal and zeros in the off-
diagonal). Hence, the sample adequacy for conducting exploratory factor analysis tested
using the KMO and Bartlett’s test of sphericity alternative in the IBM SPSS data analysis
software. As can be seen in Table 4.27a the Kaiser-Meyer-Olkin’s Measure of Sampling
Adequacy found to be satisfied (.846, Sig. at .000), which is above the recommended
value (.8) by (Kaiser 1970; Cerny and Kaiser 1977; Dziuban & Shirkey, 1974; Gaskin,
& Happell, 2014).
The group of loadings cascading diagonally downward (component 1 up to component

16 in Table 4.27a) is calculated in the EFA. These figures are called item loadings to their
respective constructs. Item loading indicates that how much an item which has been
presumed to explain certain construct was conformed to the intended construct. As can
be seen in Table 4.27a, the construct Dynamism was explained by six items.
Theoretically, the six items have not been intended to explain dynamism. From a
nomological net perspective (Ziegler, & Hagemann, 2015), they were intended to capture
the three factors (competitive intensity, Customer heterogeneity, and market dynamism).
Contrary to the expectation that they would conform to the theoretically defied behaviour,
they appeared as a single concept which we name it dynamism. Because all the items
employed in the instrument to capture the attributes of these three concepts are related to
either market dynamism, customer dynamism, or competitive dynamism. Except for the
competitive dynamism concept, all mixing the two parts was supported by Sefiani’s
(2013) finding in the statistical approach part of his thesis work.
Before conducting research based on structural equation modelling, it needs to test the
items for different forms of validities. Those are: “1) Construct validity (Does the test
measure the concept that it’s intended to measure?), 2) Content validity (Is the test fully
representative of what it aims to measure?), 3) Face validity (Does the content of the test
appear to be suitable to its aims?), and 4) Criterion validity (Do the results correspond to
a different test of the same thing?).”
211
Face validity and content validity has discussed in the methodology part of the study.
with regard to assessing construct validity, there need different forms of factor analysis
before discussing it there. Hence, it is discussed in this part of the study so that it will be
nearby the methods of assessing that test. EFA and CAF are the tools we can test for
construct validity. In the EFA, it was tested the convergent part of construct validity.
Whereas, the discriminant part of the construct validity was tested in CFA.
Convergent validity can be maintained if the loading of every construct is greater or

equal to 0.5. since all the average and individual items loading of the constructs in Table
4.27a has item loading above 0.68, it could be generalized that the is no convergent
validity concern. Convergent validity is a form of construct validity which tests if items
forming a single construct are highly correlated to each other. Average Variance
Explained (AVE) is also another strict measure of convergent validity Malhotra and Dash
(2011) cited in statwiki. AVE greater than 0.50 is a cut off criteria for items to register on
its latent variable. The fourth column of Table 4.26a lists AVE of the 23 and 16-factor
solution measurement models of the CFA. As can be observed in the Table, all the items
have AVE value greater than .54 which is above the minimum criteria to assure good
convergent validity has achieved.
Average loading (AL) calculated based on the EFA is stated in the second last column of
Table 4.27a. All the values of ALs are above the required 0.7 loading value. Having these
required results in hand, supported by the factor loadings demonstrated above (Table
4.27a), the EFA has suggested a sufficient convergent validity has attained. Hence, it was
apparent to proceed to the next level of factor analysis which is CFA. Testing the
measurement model in such multiple forms of alternatives helps the researcher much in
completing the validity and reliability tests.
Furthering the Convergent and Discriminant Validity in CFA
Several examples from the existing literature, such as Netemeyer, et al., (2003),
highlighted that the use of CFA for deleting potentially problematic items and confirming
a scale’s structure is the best way to test different forms of validities. According to Shimp
and Sharma (1987) cited in Netemeyer, et al., (2003) EFA is used first to trim the number
of items reliable and the most valid items from the data collection instrument. Based on
212
this foundation, they reduced from 100 items to 25 items, using minimum loading of 0.7,
in their study.
From the CFA we have got values for each item in every latent variable, called
standardized item loading, represented by CFA in the last column of Table 4.27a above.
These values are demonstrated in figure 4-22. Additionally, the standardized loadings of
the items of constructs are also stated clearly, in Table form, at the end of the paper in
appendix 3.C.IV. The standardized item loading in the Table form was calculated using
Gaskin, & Lim, (2018), "Merge SRW Tables", AMOS Plugin which allows the
researcher to see the item loadings alongside the model adequacy. The standardized item
loading is a value indicating how much an item is determined by the prescribed latent
variable.
The CFA started computing with 108 items presumed to represent 23 constructs (see
Appendix 3.C.I, Appendix 3.C.II). But all items interred in the measurement model were
found valid to proceed further. Based on Bearden’s et al. (2001) criteria as cited in
Netemeyer, et al., (2003), which suggests 0.70 as an optimum loading for retaining an
item, the study retained only 67 items. The items have a minimum standardized loading
of 0.66 (one item of the Formalization construct) and maximum loading of 0.97 (like in
the case of organization learning). (see figure 4-22 and last column of Table 4.27a).
213
Figure 4-20 Result of the CFA Based on 16 Factor
Source: Measurement Model Based on researchers’ data calculated in AMOS.
214
During the CFA, items showing standardized loading of less than 0.5 were removed from
the measurement model. The removing and retaining process in the CFA was helped with
an analysis tool developed by Gaskin, & Lim’s, (2018), to help the AMOS result be more
convenient for users. Due to the size of the structural model and complication of the lines
(as can be seen in figure 4-22), the standardized factor loadings are stated in a table
format, compiled with the result of EFA (see the last column of Table 4.27a).
After the necessary verification for the model sufficiency in different levels of the CFA,
a measurement model has emerged with 16-factor solutions (figure 4-22). These
constructs have been retained for further analysis in the structural model.
Before deciding on how many factors should have to be retained, the researcher tested
for model adequacy using multiple verification methods. In order to check the data for
common method variance, Harman’s single-factor model (Appendix 4.6A), specific bias
test (Appendix….), and different model fit indexes (Appendix 4.6B) were conducted in
SPSS for former and AMOS soft wares. Except for Harman’s single-factor model, the
other tests have been conducted in AMOS software. These testing methods allowed the
researcher to identify, if any, ineligible responses which need treatment or removal from
the measurement model before proceeding to the structural model.
Harman’s single-factor model is a test of common method variance, used to identify an

appropriate number of factors for a particular model (Harman, 1976). From the test of
this common method variance in SPSS, no single factor in our study was found explaining
the variance of more than 13.27 percent (see appendix 4.6A). This figure is far below the
suggested threshold (50%) by Harman’s. Zero Constraints Test (specific bias test) has
also been during analysing the measurement model in AMOS. With the help of
Gaskination's plugin to AMOS, comparison was made among the result of the
Unconstrained Model (X2 =6401, DF = 2024, Delta_X2=0.000 P-value =1), the result of
the Zero Constrained Model (X2 =6401, DF = 2024, Delta_DF=0, P-value =1). The
automatic result of the plugin suggested that the null hypothesis cannot be rejected (i.e.,
the constrained and unconstrained models are the same or "invariant") Gaskin, J. & Lim,
J. (2017). The result demonstrated that no specifically biased response was detected
which might have affected the model (see appendix 4.6B). Therefore, no bias distribution
test made (of equal constraints) receding the researcher moving to causal modelling.
215
Additionally, a group of model fit indices has been tested using Gaskin’s plugin AMOS
which allows the researcher to use readymade “Cut-off Criteria for Fit Indexes in
Covariance Structure Analysis” of Hu and Bentler, (1999). The result of the test is
presented in Table 4.28 below.
Table 4.28 The Gaskination's model fit testing plugin AMOS

Measure Estimate Threshold Interpretation
CMIN 6400.781 -- --
DF 2024.000 -- --
CMIN/DF 3.162 Between 1 and 3 Acceptable
CFI 0.902 >0.95 Acceptable
SRMR 0.035 <0.08 Excellent
RMSEA 0.046 <0.06 Excellent
PClose 1.000 >0.05 Excellent
Source: Calculated in IBM AMOS using Gaskin, J. & Lim, J. (2016), "Model Fit
Measures", AMOS Plugin.
As can be seen in Table 4.28a the chi-square divided by degree of freedom

(CMIN/DF=3.162) shows little above the threshold (i.e. CMIN/DF=3). However, the
model fit measure by Gaskin and Lim considered it as an acceptable fit index. Because it
deviates little from the threshold. It is apparent to support the measurement model by
assuring its fit in multiple forms of fit measures. Comparative Fit Index (CFI) is one of
the most used fit models. The ideal fit index for CFI is greater or equal to 0.95 value.
However, it is also safe and acceptable to be processed with a measurement model having
a CFI value starting from 0.90. The measurement model with a 16-factor solution as
demonstrated in figure 4-22 have an acceptable fit index (CFI=.902). As a move to
support the effort of identifying the model fit level of the measurement model in the CFA,
Gaskination's model fit testing tool gives three additional fit indexes. Model fit indexes
measured in terms of standardized root mean square residual (SRMR), root mean square
error of approximation (RMSEA), and Close-fitting model (PClose) have witnessed that
the measurement model has an excellent fit which does allow the researcher to proceed
with.
After applying all the tests and model fit indices, the measurement model emerged with
16 factors solution. These factors as demonstrated in figure 4-22 have formed from 67
216
items which were found as the most qualified items to form these factors using multiple
tests and retests.
Tow factor out of the 16 factors (Dynamism and Government Regulations) have formed
from six items each. Factors including Market Orientation, Futurity, Perceived Growth,
and Government Services2T were formed from five items each. Factors constructed from
four items are Preparedness & Need to Grow, Pro-activeness, Perceived Efficiency, Trust
and Loyalty, and Government Services1T. There are also five constructs built from three
items each. Those are: Aggressiveness, Formalization, Social Network, Organizational
Learning, Risk-taking Propensity
Generally, after testing for different forms of model fit indexes (as shown in Table 4-
28a), the CFA with the 16-factor solution demonstrated in figure 4-22 has been used in
the subsequent analysis part of the study.
4) Discriminant Validity Using CFA and Master Validity
“Discriminant validity refers to the extent to which factors are distinct and uncorrelated.
The rule is that variables should relate more strongly to their factor than to another
factor.” Considering 0.4 as an acceptable loading for an item to be included in a construct,
the pattern matrix in Table 4.27a was calculated using items having a loading of 0.4 and
above. Based on this result, no discriminant validity concern was observed during the 16-
factor solution of EFA. Because there was no item showing up a cross-loading in different
constructs with loading value of above this range. However, due to the difference in the
source of developing the instrument the researcher tried to support the EFA analysis with
CFA. The factor correlation matrix stated in Table 4.29 is a result of CFA with the help
of Gaskin’s “Master Validity Tool” Plugin.
The factor correlation matrix is another way to verify a measurement model for
discriminant validity concerns. Especially, the factor correlation matrix calculated during
the CFA with the help of Gaskin’s “master validity tool” is more convenient for
interpretation. The correlation result as stated in Table 4.29a achieves discriminant
validity recording correlation among factors below the highest threshold
(Correlation=.70). More importantly, the square root of AVE (stated bolded diagonally)
shows that there is no concern of discriminant validity. Because the square root of AVE
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is greater than any of the values in the inter factor collation (see Table 4.29a). The criteria
are based on Hu, Bentler, (1999), as cited in Gaskin’s master validity tool.
Table 4.29 Correlation Matrix of 16 Constructs with structural Model Validity
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

1. Mark_Orient .85
2. Formalization .35♦ .71
3. Profitability .04 .16♦ .73
4. P_Growth .23♦ .22♦ .06 .84
5. G_PrepNeed .27♦ .47♦ .09* .25♦ .75
6. Aggressive .03 .03 .04 .00 .03 .72
7. RiskTaki -.37♦ -.34♦ -.04 -.06† -.24♦ -.02 .84
8. Proactive .36♦ .39♦ .04 .37♦ .36♦ .03 -.17♦ .77
9. Org_Learning .00 .06 -.02 .15♦ .11● .02 -.01 .11♦ .93
10. Dynamism .19♦ .07† .04 .48♦ .03 -.02 -.04 .21♦ .04 .78
11. P_Efficiency .087* .36♦ .08* .24♦ .45♦ .04 -.19♦ .52♦ .24♦ .01 .75
12. Gov_Regu .19♦ .12● .00 .24♦ .07* .03 -.07* .34♦ .25♦ .05 .47♦ .77
13. So_Network -.01 -.13♦ -.01 -.01 -.05 .02 .02 -.06† . .03 .02 -.03 .85
14. Gov_Servi1T -.04 -.11● -.04 .06† -.01 .04 -.03 -.02 -.04 .03 -.08* -.08* .06† .86
15. Gov_Servi2T -.05 .03 .06† -.02 -.04 .01 .01 -.01 .01 .03 .01 -.11● -.01 .20♦ .82
16. Trust .09 .2 .03 .19 .17 .05 . .34 .32 . .48 .52 . . . .80
Sources: Calculated in AMOS "Master Validity Tool" of Gaskin's Plugin, using the last
16-factor solutions resulted of last CFA
Significance of Correlations= † p < 0.100, * p < 0.050, ● p < 0.010, ♦ p < 0.001
Generally, the uni-dimensionality of factors has assessed in multiple stages of the test as
discussed in the previous few pages. The existence of reliability was assessed and
confirmed using the results of the Cronbach’s alpha of each construct, composite
reliability, and AVE. Conducting different forms of validity tests, the researcher assured
that the data collected through the instrument has been valid. Many of the items have got
collected around their theoretical constructs with higher loadings. No concerning cross-
loadings have been seen in the pattern matrix after suppressing loadings less than 0.4
outside their purported construct. The value of AVE was greater than the required value
(0.50). And last but not least, the square root of AVE (written down diagonally in the
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factor correlation matrix in Table 4.29a) did not exceed the maximum inter factor
correlation coefficients. All these tests assured that the measurement model and the data
above the ceiling have been evidence of assuring construct validity. More or less, all the
tests regarding the measurement and the way it was collected satisfy what they purported
to be. Hence, the next step is estimating the growth of business enterprises after testing
for some assumptions.
4.6 Testing Regression Assumptions
Testing of assumptions is an important task for researchers who need to use multiple
regression or indeed any statistical technique. Violations serious assumptions can result
in biased estimates of relationships, biased standard errors (over or underestimates of the
regression coefficients), and untrustworthy confidence intervals and significance tests
(Chatterjee & Hadi, 2012; Cohen, Cohen, West, & Aiken, 2003; Williams, Grajales, &
Kurkiewicz, 2013). Considering SEM as one of the regression techniques, it is necessary
to test and assure whether the result of major assumption has found satisfactory against
their respective threshold. Thus, multiple assumptions have been tested before
conducting the structural equation model. Most of the results for the assumption tests are
stated in the Appendix part of the study.
Almost all the tests for the regression assumptions are depicted under Appendix 4, which
extends from appendix 4.1 to appendix 4.6. Before every assumption was conducted the
first activity of the researcher was to test the dependent variables for normality.
Observing each of the four dependent variables had not a normally distributed curve
during the tests, a procedure of transforming the data was conducted so that the variables
show a normally distributed curve.
The two-Step data transformation method was used to transform the data into normality.
This method was suggested by Templeton, (2011), as a more effective way of
transforming variables with both a high number of levels and with less influence of high-
frequency modes than the traditional tri-and-error method. Generally, the two-step data
transformation method according to Templeton, (2011), is used to improve causal
inferences, including statistical power, hypothesis tests, effect sizes, and generalizability.
Appendix 4.1 (Appendix 4.1A – 4.1D) demonstrates figures which depict how the
normality of the four dependent variables (employment growth, capital growth, sales
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growth, and perceived growth) have evolved into normally distributed curves.
Accordingly, except for the perceived growth, which is a dependent variable based on 5
point Likert scale items, the other three variables converted into a normally distributed
curve. The cause for the perceived growth not be converted into normality is because the
two-step data transformation is not effective in the case of transforming variables with a
low number of levels (e.g. 5 point Likert scale items) (Templeton, 2011). Nevertheless,
the original normality curve of perceived growth was better than the transformed data
which is very far from normality. Hence, the researcher allowed the original data of the
variable to be included in the subsequent assumption tests and SEM.
Appendix 4.2 deals with the assumption of the Zero Conditional Mean of Errors. This
assumption states that the errors are assumed to have a mean of zero for any given value,
or combination of values, on the predictor variables (Williams, Grajales, & Kurkiewicz,
2013). Based on this assumption a descriptive analysis of the unstandardized residuals of
the four dependent variables was conducted in SPSS software. The summary statistic in
appendix 4.2 depicts the result of this analysis. The mean the unstandardized residuals of
the four dependent variables achieve the Zero Conditional Mean of Errors assumption by
showing zero means over the dependent variables. Achieving this assumption indicates
that it is safe to conduct a maximum likelihood (ML) regression method in the SEM.
Independent of Residuals: “A core assumption of the standard multiple regression

model is the independence of residuals, the violation of which results in biased standard
errors and test statistics. The structural equation model (SEM) generalizes the regression
model in several key ways, but the SEM also assumes independence of residuals.”
Curran, (2003)
The Assumption of Independence of Regression errors was tested using two methods: 1)
Using the Durbin-Watson test of independence of regression residuals (depicted in
Appendix 4.3A) and using the Scatter Plot (as it is stated in appendix 4.3B). the scatter
plots are also used to test the linearity of the relationship among the four dependent and
other independent variables.
The Durbin-Watson (1950) statistic (DW or d) is a commonly used and routinely reported
diagnostic test for the presence of first-order auto or serial correlation in the error of a
time-series regression model (Durbin-Watson 1950 Cited by White 1992). The statistic
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is calculated using the residuals from the regression model. The Durbin-Watson statistic
ranges in value from 0 to 4. A value near 2 indicates non-autocorrelation (which is the
acceptable range); a value toward 0 indicates positive autocorrelation; a value toward 4
indicates negative autocorrelation.
As can be seen in appendix 4.3A, with DW values around the acceptable critical range
(i.e. 2.05 for Perceived Growth, 1.91 for Sales Growth, 2.02 for Capital Growth, and
2.036 for Employment Growth) none of the four models were found concerning about
serial autocorrelation. Additionally, a scatter plot of the regression residuals was sketched
for all of the four models. The shape of the scatterplots is cloth to a rectangular shape
(see appendix 4.3B) which indicates that the residuals are independently distributed.
Based on the result of the two methods, there is no regression model out of the four
models that have a concern of serial autocorrelation. The existence of serial
autocorrelation might affect the robustness of the estimation. Therefore, the researcher
assured that the data used in this study have achieved the assumption of independent
residuals. Consequently, it allows conduct analysis based on the ML regression method
in SEM.
Testing the normality of residual of dependent variables is among the top assumptions
researchers always go for before conducting any parametric related statistical tests
(Williams, Grajales, & Kurkiewicz, 2013). In addition to the testing independent of
residuals, the scatter plot demonstrated in appendix 4.3B indicates that most of the
residual data points are distributed between 3 and -3 standard deviations. This implies
that most of the standardized residuals are cloth to normality. This gives green light for
subsequent analysis using this particular data.
Linearity Assumption is one of the OLS based regressions assumptions which should
be tested before any least-square related regressions are going to be conducted. The
linearity assumption assumes there should be a linear relationship between the
distribution of the predicting residuals and the estimated residuals. To see the linearity of
these relations the researcher drawn a Normal P-P plot of four models as depicted in
Appendix 4.4. All the normal P-P plots demonstrate that the relation between the
dependent and independent residuals even though it is not perfectly linear.
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Multicollinearity: The presence of correlations among more than two predictors is called
multicollinearity (Belsley, Kuh, & Welsch, 1980; Slinker & Glantz, 1985); Dodge,
(2008). A perfect correlation between two or more predictors (multicollinearity) means
that no unique least-squares solution to a regression analysis can be computed (Belsley,
Kuh, & Welsch, 1980; Slinker & Glantz, 1985; Dodge, 2008). In order to check for such
a multicollinearity issue, the researcher conducted a Pearson correlation analysis of the
interval level variables.
Accordingly, as it is depicted in appendix 4.5 there is no concern about multicollinearity

issues among the independent variables. Especially, the correlation coefficients of the 16
constructs are ranged from 0.01 to 0.58, which indicate that there no sever
multicollinearity concern found exceeding the value of 0.60 (Hair et al., 1998). Hence
the researcher didn’t go further to see the multicollinearity issue using Variance Inflation
Factor (VIF).
Generally, the researcher conducted multiple types (Zero Conditional Mean of Errors,
Independence of Regression errors, Normality of Residual of dependent variables,
Linearity, and Multicollinearity) assumptions before going for the structural equation
modelling. Sufficient test results of the assumptions allowed the researcher to continue
analysing the effect of different growth determinants on the growth of manufacturing,
merchandising, and combined sectors in Ethiopian using the maximum-likelihood-based
SEM as discussed in the subsequent part of the study.
4.7 Path Analysis in SEM (Firms’ Growth Determinants)
All the procedures in the previous sections of this chapter were conducted to reach
an efficient structural model so that it would be easy to estimate the growth of firms
using the presumed variables. Thus, it was necessary to teste items and variables for
reliability and validity concerns and violation of different assumptions before
formulating the model in structural equation modelling.
After testing and retesting procedures, not all the initially presumed variables have
got included in the model. For example, most of the categorical and ordinary
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variables (which have got transformed into dummy variables in different stages of
the analysis) have not been found correlated sufficiently with the growth measures.
Therefore, most of those variables identified during the literature review have not
been included in the estimation of the path model.
Generally, having all the tests and data treatment procedures, the model was
developed using 26 independent and 4 dependent variables. The development of path
models depicted in the subsequent pages has been formulated in a way to show the
impact of these 26 variables on the respective alternative measure of business growth
(perceived growth, sales growth, employee growth, and capital growth). Thus, the
main objective of the section is to show which variable among the valid and reliable
variables have or have not to impact on the growth of manufacturing and
merchandising sectors (see the models in figure 4-23, Appendix 5A1, and Appendix
5B1).
Model fit Indexes
To have a better estimation of the growth model, the researcher conducted model fit
indices in the SEM. All the indices (Chi-goodness fit index which is determined using
Chi-Square over the degree of freedom, NFI, RFI, IFI, TLI, CFI, RMSEA) as depicted in
Table 4.30 showed that the model is sufficient to fit the data. As a result, it allowed the
researcher to proceed with the SEM using the data from merchandising, manufacturing,
and combined data set as can be seen in Table 4.30 below.
The second row of the table demonstrates that the rule of thumb set by different
researchers in the literature. In the first values column of the Table, the Chi-square
divided by degree of freedom (χ2/df =1.25 for merchandising, 1.04 for manufacturing,
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and .98 for combined) indicates that all the values are within the required range of
CMIN/DF=<3 (Hooper, Coughlan, & Mullen, 2008). Such a result indicates that the
model is fit and allows us to undertake further analysis in SEM (see 2nd column of Table
4.30).
Normed Fit Index (NFI) is an incremental measure of goodness of fit for a statistical
model, which is not affected by the number of parameters/variables in the model it is also
called Bentler-Bonett Normed Fit Index (Bollen, 1986, Bentler & Bonett, 1980). NFI
greater than 0.90 is the cut-off point to accept a model as fit to its data. The data for
merchandising and manufacturing, with the NFI value of 0.97 for each and the combined
data, with NFI value 0.98 indicates the model is sufficient at least for this measure to be
a fit model (see 3rd column of Table 4.30).
Table 4.30: Model fit Indexes
χ2/df NFI RFI IFI TLI CFI RMSEA

Recommended value→→→ <3 a
>.90 d,e
>.90 >.90d >.90d,e >.90c <.08b
Actual value Merchandising 1.25 .97 .90 99. 1. 1. .01
Actual value Manufacturing 1.04 .97 .91 1. 1. 1. .01
Actual value Combined .98 .98 .93 1. 1. 1. .00
Source: Computed in AMOS Sofware during the SEM
A structural model with a relative fit index (RFI) close to 1 is considered a good fit model
(Bollen, 1986). The result in the 4th column of Table 4.30 depicts that the model fulfil s
the prescribed criterion to be a good fit model for the three data sets. Incremental Fit
Index (IFI) calculated after adjusting the NFI for degrees of freedom and sample size put
IFI greater than 0.90 as the lowest value to consider a model for further analysis (Bollen,
1989). In all of the three data sets (merchandising, manufacturing, and combined) the
structural model shows IFI values close to 1 which is assumed to be a better model fit
(see 5th column of Table 4.30).

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The other model fit index, Comparative Fit Index (CFI) is one of the most used measures
of model fit indices. The ideal fit index for CFI is greater or equal to 0.95 (Bentler, 1990).
However, it is also safe and acceptable to be processed with a measurement model having
CFI value starting from 0.90. In this study, the CFI for all of the three models is greater
than the ideal fit index (see 7th column of Table 4.30).
“Root Mean Square Error of Approximation (RMSEA) is one of the absolute fit indexes
which tells us how well the model, with unknown but optimally chosen parameter
estimates, would fit the population's covariance matrix” (Byrne, 1998, Hooper,
Coughlan, & Mullen, 2008; Byrne, (2013)). Specifically, Steiger, (1998) advanced the
model fit measure to consider multiple sample groups. Values less than 0.07 indicates a
good model fit achieved (Steiger, 2007, cited in Hooper, Coughlan, & Mullen, 2008).
The RMSEA values for all of the three data sets in this study, as can be seen in the last
column of Table 4.30 are far below the criteria (i.e. RMSEA= around 0.01 for
Merchandising and manufacturing and RMSEA= rounded to 0.00 for the combined data
set).
All the fit indices above in the preceding discussion, in general, indicate that the structural
model going to be discussed in the coming pages is fit to all of the data sets
(merchandising manufacturing and combined) in the study. This was verified through the
satisfactory results of the incremental and absolute fit indices as discussed above. Using
this verified data sets with its model, the next part of the study discusses how growth
determinants have affected the change in the growth of the business enterprises in
Ethiopia, Addis Ababa.
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Regression Result (factors affecting alternative growth measures)
After a series of data tests and verifications, which have aimed at having a reliable and
valid data for the analysis, the researcher managed to design an all-inclusive structural
equation model. The structural models depicted in this part of the study and the appendix
part illustrate that what looks like the impact of those factors verified in the previous
research procedures on the growth of four alternative business growth measures side by
side.
In order to formulate the structural model, the researcher lastly conducted a correlation
analysis as can be seen in appendix 4.5. The correlation analysis was used to select factors
which have sufficient correlation with the four growth measures (independent variables).
Based on the result from the correlation analysis, variables having significant correlation
coefficient have selected to formulate the growth models as depicted in figure 4-23 for
the combined data set and appendices 5A1 and 5B1 for merchandising and manufacturing
sector data sets respectively. 26 number of variables, including three outcome variables
used as predictors of other outcome variables have been totally employed in the
aforementioned models. Out of which, five are categorical variables selected from
another research procedure which has discussed in Table 4.21 (i.e. part one of chapter
four).
The five additional categorical variables have been selected from the result illustrated in
the coefficient of determination analysis (see Table 4.21) which measures the relation
between categorical predictor variables and a continuous outcome variable. Having more
relation with the growth measures was a base to select among the 27 categorical variables.
Based on this criterion having related business experience (R_BussiEx_OM27a), being a
food processing sector (Food_pro), engaging in the fashion industry (Fassion_pro), lack
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of foreign exchange (Forex), devaluation of currency (Devaluation), and access to
financial institutions (BF_Finance19a) have been used throughout the study to predict
the growth measures.
Predictor variables including business experience (appeared at the top left side of figure
4-23); and initial capital, age of owners or managers, age of firms, and the initial number
of employees, illustrated in the lower left side of the same figure are interval level
variables measured at interval ratio. Sales growth (to predict profit and capital growth),
profit growth (in predicting capital growth), and capital growth (in determining
employment growth) have also been used to complete the models demonstrated in figure
4-23, appendices 5A1 and 5B1. The remaining 13 variables are Likert scaled factors
verified in different levels of factor analysis as discussed in the presiding parts of the
chapter.
The growth measures are illustrated in the right side of figure 4-23, appendix 5A1, and
appendix 5B1. The right side holds the dependent variables (perceived growth, sales
growth, profit growth, capital growth, and employment growth) while the right side
represents the predictor variables. Every growth measure was modeled with its respective
predicting variables which have been identified as eligible during the correlation analysis
(appendix 4.5) and relationship analysis (Table 4.21).
Due to the reason that the criteria of selection were the strength of the relations which
each predictor variables have with the outcome variables, the type and number of factors
used to form each model were not similar. Hence, 18 variables to predict perceived
growth, 8 variables to predict sales growth, 11 to estimate capital growth, and 8 to
estimate employment growth have been employed throughout the structural model (see
figure 4-23).
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The SEM, depicted in figure 4-23 therefore, illustrates about five standalone models
including profit growth. However, since there are some interdependencies among the
standalone models, (example sales growth, a dependent variable by itself appeared to be
a predictor to capital growth; and capital growth, in turn, was used in predicting
employment growth) the SEM appeared to be relatively large and consequently, hardly
readable model.
Thus, the effects of the growth factors on the alternative growth measures which are
illustrated in the SEM are presented and discussed using their Table versions. The Table
version of the result allows the researcher to show the effect of the independent variables
on each dependent variable separately. Hence, figures 4-23 and the result of the two
sectors stated in figures 5A1 and 5B1 are represented by the Table forms as illustrated in
Table 4.31 to Table 4.35.
It is worth mentioning the power of each model however, before going for the detailed
description and discussion of effects in the separate Tables. The growth model for 1038
merchandising and manufacturing firms measured in terms of perceived growth was
explained by about 32 percent (see top right side of figure 4-23) of its total changes with
the 18 variables. When this result was analysed group-wise, the same 18 variables
explained 34 percent (see top right side of figure 5A1) of growth in the merchandising
sector and 30 percent (see top right side of figure 5B1) of growth in the manufacturing
sector.
Referring to the above-mentioned figures, the eight factors only afforded to explain only
2 percent of the changes in the growth change measured in terms of sales growth for the
pooled data set. Comparing the two sectors, the same factors have explained the growth
model for the merchandising and manufacturing sectors about 4 percent and 3 percent
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respectively. The result is depicted at the middle right side figures 4-23 and appendices
5A1 and 5B1 respectively.
Looking from the bottom up at the aforementioned structural equation models, there is
capital growth. Approximately, 18 percent capital growth change of the total target
businesses, 12 percent capital growth in the merchandising sector, and 23 percent capital
growth in the manufacturing sector are explained by 11 factors as will be discussed in the
coming pages.
Last but not least is employment growth. Employment growth was found at the bottom
of the figures discussed in this subsection. The model was formed from eight direct
factors that have abled to explain the model about 67 percent of the total changes that
employment growth could have reported. The employment growth model for the
manufacturing sector was explained more than that of the growth model in the
merchandising sector (which is 78 percent for the former and 34 percent for the later).
All in all, 67 percent of employment growth, 32 percent of perceived growth, 18 percent

of capital growth, and 2 percent of sales growth of firms illustrated in the model stated
under figure 4-23 is explained by the specified factors. Thus, factors employed to estimate
employment growth have more explaining power than factors used to predict the other
growth measures. The growth method analysed based on owners’ and managers’
satisfaction with their business performance (perceived growth) ranked second in terms
of how the model was explained using the predicting variables.
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Figure 4-21 Merchandising and Manufacturing Combined Path Model
Source: Calculated using own data in IBM SPSS AMOS software
230
The third growth model is a model based on the wealth maximization motive of owners
(capital growth). this growth model has the third R2 value, which indicates the portion of
growth change estimated by the specific factors lower than change explained in the
employment and perceived growth cases. The poorly explained model among the four
models is sales growth. the factors used in estimating the change in sales growth have a
negligible explaining power (i.e. about 2 percent). Whereas, the path model depicting
profit growth is not modeled in a way to show how the model is sufficiently explained
by its predictors. Rather it is only used as a predicting variable to capital growth.
Having these general findings of the models, the next five tables will show how every
factor in the previous figures affects the four growth alternatives comparatively. The
comparison illustrates the result of the path model for the pooled data of both sectors as
well as the result of the merchandising and manufacturing sectors separately. Table
number 4.31 to Table number 4.35 demonstrates the comparative results on which
discussion will pursue in the coming pages. In the existence of indirect effects of
predictors to the outcome variables, the Tables include the direct-indirect and total effects
of the independent variables. Otherwise, the Table only presents the effect of the
dependent variables including the significance value (p-value). Detail results of the
aforementioned three figures (figure 4-23 and the two other figures in appendices 5A1
and 5B1) are interpreted and discussed under the following four contents (A to D).
A) Factors Affecting Perceived Growth
Perceived growth, a subjective growth alternative in this study was used in measuring the
feelings of managers and or owners towards the performance and growth of their business
enterprises. The scale employed to grasp such kind of subjective feelings have developed
combining the subjective measures of the studies conducted by Venkatraman, (1989) and
231
López, et al., (2005). Adopting such a behavioural variable could help in avoiding the
conclusions which might be made from research results based on misstated financial data.
Because financial data is subject to several misstatement practices for several reasons like
tax avoidance.
The standardized regression weights depicted in Table 4.31 are therefore illustrating 18
factors affecting this behaviour business growth measure. The regression weights in the
Table contains three results. A regression weight with its level of significance for the
merchandising sector, another weight and p-value for the manufacturing sector, and in
the last main column, for the combined data set.
First, let us see factors that have a significant effect on the perceived growth of all data
sets. Preparedness to growth (G_PrepNeed), proactiveness of owners or managers
(Proactive), Dynamism, Formalization, organization learning (Org_Learning), easiness
of government regulations (Gov_Regu), general governmental services (Gov_Servi1T),
and Risk-taking propensity of owners and managers (RiskTaki) found significant factors
determining perceived growth of both merchandising, manufacturing and combined
sectors. except for RiskTaki and formalization factors, all other effects on the perceived
growth are significant at 0.001 level in all data cases. Formalization and RiskTaki on the
other hand are significant at a 0.01 level, two-tailed distributions. Preparedness and need
to grow (G_PrepNeed), however, is a combination of items from the individual
dimension and business level dimension. This was performed during the factor analysis
process. The positive result indicates that firms having the willingness and capacity to
expand and grow perceived that their businesses are performing well.
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Combined of the two sectors - Structural weights)
Combined
Merchandising Manufacturing Dataset (Mrds&
S. Independent Dep.
Mnfg)
No Variables Var
Std. Std. P Std.
P P
Est. Est. Est.
22 Mark_Orient .06 .02 .03 .17 .05 .03
23 G_PrepNeed .12 *** .12 *** .12 ***
24 Proactive .14 *** .14 *** .14 ***
25 Dynamism .43 *** .35 *** .39 ***
26 P_Efficiency .02 .59 .03 .22 .02 .33
27 Formalization .06 .02 .07 .01 .06 .00
28 Trust . .96 .04 .17 .02 .36
29 Org_Learning .06 .01 .08 *** .07 ***
30 Gov_Regu .11 *** .11 *** .11 ***
31 Gov_Servi1T .07 *** .09 *** .08 ***
32 RiskTaki .06 .01 .05 .04 .06 .01
34 R_BusiEx_OM27a .03 .15 .04 .04 .04 .04
35 Food_pro .04 .05 .02 .39 .03 .10
36 Fassion_pro -.03 .11 -.03 .26 -.03 .11
37 Forex .04 .12 .01 .69 .02 .24
P_Growth
38 Devaluation -.02 .34 . .92 -.01 .56

39 BF_Finance19a .02 .38 -.02 .48 .00 .94
40 BusinessEx_P28a -.01 .79 .02 .47 .01 .8
Source: Matrices Calculated in SEM result using AMOS 24 and compiled in Excel
The level of significance for all of the listed variables indicate that the tendency of change
resulted in the perception of the owners due to a one value change in the specified list of
predictor variables. For instance, Dynamism with a standardized estimate of 0.43 for
merchandise, 0.35 for manufacturing, and 0.39 for both sectors combined have a higher
impact on the perception owners and managers towards their satisfaction in the change
of their business enterprises. Dynamism deals with market dynamism, competitive
intensity in the market and customer heterogeneity have a more positive significant effect
than the other listed variables. This indicates that firms working under a higher
competitive and dynamic market tends to prepare for tough competition and unexpected
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continuous changes in the market. As a result of such preparedness, owners believing
there is higher dynamism in their market perceives their businesses are doing well.
The other factors affecting the growth of firms measured in terms of owners’ perception
are factors affecting significantly one of the sectors but not the other. Respondents in the
merchandising sector, having better market orientation (Mark_Orient= with .06
standardized regression weight of and .02 significant level) have more tendency to
believe their firms are doing better than owners and managers who don’t have such an
orientation. This variable was found significant in the case of manufacturing firms.
However, when the data for both firms get combined, the result becomes significant and
positive, which indicates that having market orientation is a significant factor in
determining business growth measured in terms of perception. Besides, merchandising
firms in supplying food products (Food_pro= with .04 standardized regression weight of
and .05 significant level) perceived more growth than merchandising firms participating
in other industries.
When we come to variables that affect the growth of firms in manufacturing but not
merchandising, we find related business experience (R_BusiEx_OM27a). With 0.04
standardized regression weight and .04 significant level, the effect of related business
experience on the perceived growth of the manufacturing and combined data indicates
that the variable has a positive impact on this particular growth measure. The other
remaining variables with a significance level above 0.05 are not considered and lead to
as significant determinants of the perceived growth of firms.
The other issue worth discussing in Table 4.31 is regarding which dimension of growth
factors have a more significant impact on the perceived growth of firms in Addis Ababa
city. In this regard, we find the business-level dimension at the forefront. six variables of
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this dimension (Pro-activeness, Dynamism, Formalization, Organization learning in all
sample cases and Market orientation and selling food products in either of the sectors)
have a significant effect on the perceived growth of the target business enterprises. Next
to the business-level dimension, the individual-level factor of business growth is seen as
significant determinants of the perceived growth of the target firms.
Individual-level factors including Risk-taking propensity to business-related experience
found significant factors in determining the perceived growth of the target firms. The
former in all of the data sets, while the later in the combined and manufacturing sectors
data sets. As it was discussed earlier in this subsection, preparedness and need to grow
(G_PrepNeed), is a combination of items from the individual dimension and business
level dimension. Hence, it could represent both dimensions.
Factors categorized in the external dimension have also plaid their role in determining
the growth model illustrating perceived growth. The positive and significant result of
these factors indicates that business owners or managers perceive Easiness of in
government regulations and perceived they enjoy better general governmental services
tend to perceive similarly that their businesses are performing better.
Overall, the result for the perceived growth in Table 4.31 indicates that this growth
alternative has more explaining variables than the next three growth measures. The
significant factors are a combination of the individual, business level, and external
(business environment) dimensions. Out of which more business-level dimensions have
found significant determinants of perceived growth of managers or owners of the
merchandising and manufacturing firms.
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B) Factors Affecting Sales Growth
Sales growth is the most widely used alternative growth measures in the growth study
(Dess, & Robinson, 1984). As it has been discussed in the regression result earlier, sales
growth has formed employing only eight factors. Table 4.32 depicts standardized
estimates of those factors supported by the significant level the variables impacted sales
growth rate of merchandising, manufacturing, and combined data of both sectors. The
result in the tables is interpreted and discussed in the coming few paragraphs.
At 0.001 level of significance, general governmental services (Gov_Servi1T) and
Formalization affected the sales growth rate of all target firms negatively. Figuratively,
when Gov_Servi1T and Formalization increased each by 1, the sales growth rate
decreased by 0.08 and 0.10 respectively in the case of combined target sectors (see the
last column of row 1 and 4 of Table 4.32). Even though the size of the effects for the
merchandising and manufacturing firms are different, the direction is on the same side,
negative.
The negative result indicates that the more firms rated the general government services
at a higher rate and the more firms become formal suffer lower the sales rate. Relating to
the formalization, it could be reasoned out logically. Because in the research part
discussing firm growth challenges, several firms reported they suffer from the informal
sector completion. On top of that, the more the firm implements a formal business
structure the higher would be the cost of maintaining the structure. All in all, since the
informal sectors with similar products can supply similar products with formal ones, it is
apparent that the competition to get sufficient customers in the existence of informal
competitors would be tougher to the formal firms.
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However, it is very hard to explain why firms getting general government services have
suffered to increase their sales. The least possible reason might be related to the former,
formalization issue. To support firms, governments need every firm to fulfil government
requirements, which leads to formalization. Hence, the support and government service
which firms received might not offset the loss of customers that the firms encountered
due to the low price from the informal business competitors.

Merchandising Manufacturing Combined

S. Independent
Dep.Var Std. Std. Std.
No Variables P P P
Est. Est. Est.
1 Gov_Servi1T -.06 .01 -.09 *** -.08 ***
2 Org_Learning .04 .11 .06 .02 .05 .03
3 So_Network -.06 .02 -.04 .10 -.05 .02
4 Formalization -.12 *** -.07 .01 -.1 ***
SaleGrowth_N
5 Proactive .07 .01 .06 .02 .07 .00

6 BF_Finance19a .02 .44 .04 .15 .03 .17
7 Devaluation .01 .58 .04 .11 .03 .23
8 BusinessEx_P28a .03 .21 .05 .06 .04 .08
Source: Calculated in AMOS 24, Trimed and combined in Excell 2016
Pro-activeness, stated in row five of Table 4.32 was also found a significant factor, at
0.01 level of significance. The standardized estimates (0.07 for merchandising, 0.06 for
manufacturing, and another 0.07 for the combined sectors) indicate that when the value
for pro-activeness increases by 1, the sales growth rate will increase by the
aforementioned decimal figures. The positive nature of the values shows that the impact
of pro-activeness on the sales growth rate is a direct one.
“Pro-activeness is expected to be manifested in terms of seeking new opportunities
which may or may not be related to the present line of operations, introduction of new
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products and brands ahead of the competition, strategically eliminating operations which
are in the mature or declining stages of life cycle” (Venkatraman, 1989). Based on these
characteristics, with positive significant value, the result for pro-activeness supported the
previous estimates of Venkatraman, (1989) in all of the target firms in Ethiopia.
Baron and Markman (2000), argue that entrepreneurs having the ability to create a strong
network with suppliers, professionals, and customers are more likely to increase their
venture successes and consequently bring growth to their ventures. In this essence, it was
worth including the social network in this firm growth study. As depicted in the third row
of Table 4-32, thus Social Network (So_Network), was employed as one of the external
dimension variables by modifying it to include social costs such as maintaining an
informal social network.
In the case of Ethiopia, creating a social network by itself might create more cost than
benefits. Because the expensive way of social life with expensive time and money
spending in Ethiopia could counterbalance the benefit claimed by Baron and Markman
(2000), believed contributing much to the growth of ventures. Hence, it was proposed
that social networks might reduce the growth of firms in Ethiopia.
The result for these variables shows a significant (p=0.02) and negative (sta.est= -0.06
for merchandising and -0.05 for the combined data) impact only on merchandising and
combined data sets. However, in the case of the manufacturing sector, social network
affects sales growth negatively (sta.est= -0.04), but not statistically significant (p=0.10).
The negative result indicates that the more those target firms extend their social and
business network, the lower will be sales growth. As discussed in the earlier paragraphs,
the financial, as well as time cost incurred to main the social network, continues to have
an adverse effect on the growth of merchandising firms in the target area.
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Organizational learning was also one of the business level dimension factors assumed to
affect the growth of firms positively. “The organizational learning can be described as
processes or activities of learning in the organization” (Örtenblad, 2001). Managers see
organizational learning as a powerful tool to exploit their knowledge resources and in
turn to improve the performance of their organizations (Hanssen-Bauer & Snow, 1996).
Organizational Learning (Org_Learning) stated in row two of Table 4.32 on the other
hand reports positive (Sta.Est.= 0.06, and 0.05) and significant (p=0.02 and 0.03)
regression results. When Organizational learning increased by one, the sales growth rate
increases by 0.06 and 0.05 standard estimates both for manufacturing and the combined
data. These results indicate that business organizations learned from their previous
experience, and the environment has a better growth tendency than those firms which
have not. The result supports the proposition by Hult et al. (2003). In their study, Hult et
al., (2003), argued that firms accumulated better experience and business knowledge
from past performance, and business undertakings have a better chance to show better
growth.
Whereas three factors (BF_Finance19a, Devaluation, BusinessEx_P28a) have shown
insignificant impacts on the sales growth of firms. Having better access to financial
institutions and having longer business experience have initially been proposed to affect
sales growth positively. Even though the directions conform to the proposition, the effect
was not significant as proposed. This strange result poises a question on the claims that
access to browed finance and business experience play a significant role in the growth of
firms, at least in the study area. Or otherwise, the research should continue investigating
why firms borrowed from formal business enterprises didn’t better than those who
haven’t such an additional resource.
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Continuous currency devaluations were also proposed to affect firm growth negatively.
Nevertheless, it was found insignificant as discussed in the preceding paragraph. We can
evaluate all possible reasons why such a strange effect resulted here. First, most business
enterprises in Ethiopia engages in producing and supplying basic goods to their
customers. It is apparent that the demand for such essential goods would not be as elastic
as we expect. If customers are not responsive to the price fluctuation, there will not be
significance difference whether devaluation affect sales of firms. Secondly, since the
sales account is reported without adjusting for devaluation and inflation, even in the
absence of increase in sales volume, the account might show inflated amount. Hence, the
sales account recorded in the previous year and current year might show similar amount
but result of different sales volume. Third, we could conclude devaluation of currency
could not affect growth of firms measured in terms sales growth.
Overall, the strange results might have also been caused because of the little explained
model. Note that only two percent of the changes in sales growth was attributed to the
eight variables discussed above (see the R2 value of sales growth at the middle right side
of figure 4-23). Having such low R2 values sometimes may indicate the model is not a
good fit. However, due to the reason that the model was conducted after verifying the
model using different forms model fit indices, we could take the result, but put forward
the model for future investigation.
C) Factors Affecting Capital Growth
The Managerial Enterprise theory of Marris (1964), citied in Greiner (1972) states that
owners and managers of business want to maximize their separate utilities. Maximizing
wealth (capital accumulation) to the former and maintain salary and other benefits to the
latter are their main interests. Even though Marris argues growth in one alternative
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measure, in the long run, might be the same as the growth indicator in another alternative,
we estimate capital growth in the study to see what factors affect capital growth compared
to other growth measures. The result of the structural model as depicted in figures 4-23
and the figures in appendices 5A1 and 5B1, is summarized in Table 4.33 as follows. As
was discussed in figure 4-23, the proportion of change in capital attributed to the 11
factors is about 18 percent of its changes. When we try to see sector-wise, the model
demonstrating capital growth explained more (23 percent) that the model for the
merchandising sector which has only 12 percent proportion of its changes are accounted
for by the 11 dependent variables. The percentages discussed are interpretations of the R2
values in the right side of the aforementioned figures.
Two among the 11 predicting variables have negative and significant effects (at 0.001
level of significance) all over the sectors: Initial capital size (Capital_Initial43) and age
of firms (Firm_age39a). With a negative and low effect size (i.e. Std.Est.= -0.03 for
merchandising, -0.18 for manufacturing, and -0.013 for combined firms), the initial
capital of firms appeared to be inversely related variable to the growth of capital of all
sector firms. Manufacturing sector firms are more affected by initial capital negatively.
Firms having more initial capital records lower growth than firms that do not.
The result points that starting a business with larger capital have not value increasing the
capital growth of firms. In fact, it might reduce the growth of the capital. This result
supports the proposition by Okpara, & Wynn, (2007) which argued that the amount of
capital required to start a business is negatively related to growth. However, it comes
against the result of Bigsten, & Gebreeyesus, (2007) who found initial capital a positive
factor of businesses. One of the reasons could be seen from the level of effort made by
firms to grow. Firms might feel at their comfort zone when they assumed they have
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sufficient capital to pursue business operations and harvest a success only from their
investment. On the contrary, firms believed they have small initial capital is assumed to
exert their maximum effort to cope up with well-financed firms. A business organization
with such vigorous and active management tends to succeed more than businesses
managed in the comfort zone.
Several studies have recognized the importance of the age dimension of the firm. In
several cases, the relationship between the growth of firms and their age in the literature
shows an inverse relationship. The older the firm the less will be their growth (Evans,
1987; Variyam & Kraybill, 1992; Dunne & Hughes, 1994; Heshmati, 2001, Harabi,
2003). However, there some literature on the impact of age on firm performance, which
states indecisive and contradictory results (Sutton, 1997; Nguyen et al., 2004).
242

Independent
S.No Dep.Var Std. Std. P Std.
Variables P P
Est. Est. Est.
1 Capital_Initial43 -.03 *** -.18 *** -.13 ***
2 Firm_age39a -.33 *** -.40 *** -.36 ***
3 Age_OM23a -.01 .67 -.02 .49 -.02 .53
4 Mark_Orient .03 .23 .05 .06 .04 .08
5 Proactive -.01 .8 .01 .64 . .96
6 P_Efficiency .07 .01 .03 .27 .05 .02
7 RiskTaki .01 .78 . .96 . .88
CapGrowB_N
8 So_Network .07 .01 .04 .11 .05 .01

9 BusinessEx_P28a .04 .13 .06 .01 .05 .02
10 SaleGrowth_N -.02 .54 -.02 .37 -.02 .39
11 ProfGrowE_N -.05 .05 -.02 .34 -.04 .08
The regression result for the variable, age, in our study declares a negative relationship
with capital growth. The standard estimate of -0.33 for merchandising, -.040 for
manufacturing, and -0.36 for both sectors illustrates that the age of firms has a strong (at
0.001 significant level) and negative relationship with capital growth of firms (see the
second row of Table 4.33). The result supports the literature stating that old firms perform
less than younger firms.
The negative sing in the relationship could be attributed to several reasons. One of the
reasons could be achieving optimal size. Firms that stay for a longer time might achieve
their maximum size due to economies of scale and do not need to grow beyond the
economies of scale. Another reason could be the entrance of technologically advantaged
new completive firms into the market. If new firms with cutting-edge technologies and
new operational and managerial techniques enter into a market with old firms who use
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older and costly ways of producing and providing goods to their customers, the younger
firms will have more advantages for better growth than the older ones.
Perceived efficiency (P_Efficiency), social network (So_Network), and profit growth
(ProfGrowE_N) have also a significant (at 0.05 level) impact on the capital growth of
merchandising sector firms. The effect of these variables is insignificant when regressed
against manufacturing sector data. However, when both datasets combined, P_Efficiency
and So_Network appeared significant (with determinants of capital growth. The two
variables (P_Efficiency and So_Network) affect the capital growth of the specified firms
positively, while ProfGrowE_N is found in the opposite direction. Figuratively, when the
rate P_Efficiency and So_Network goes up by one, the capital growth rate of firms in the
merchandising sector goes up by 0.07 and combined data by 0.05 growth rates. On the
contrary, when the profit growth rate of the merchandising sector goes up by one, the
growth rate of capital goes down by 0.05 (see Table 4.33).
Perceived efficiency is one of the individual dimension variables, presumed to have a
positive and robust effect om the growth of firms (Shane et al., 2003). Nevertheless, the
effect of the variable was not statistically significant for the manufacturing sector, unlike
the expectation. Such deviation beyond the expectations might have been caused by
different reasons. But from what we observe in the sample data, the size of the firms in
the merchandising sector is lower than the size of firms in the manufacturing sector. Since
larger firms are more formal and professionally managed than those smaller firms,
individual dimension factors may not play a significant role in the growth of such large
firms. The other reason could be seen from a technical point of view. Because even
though, the model showed a statistically significant impact, the size of the impact is very
low, which is below 10 percent relation. In such a small size of relations, observing such
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strange findings is not a strange thing in research. All in all, the result indicates that these
factors are sector selective factors.
The significant negative standardized estimate in the last row of Table 4.33, indicates that
when the merchandising firms’ profitability increase by one, the capital growth decrease
by 0.05. The relation is inverse relation which is against their direct relation in finance.
In finance, profitability is seen as one of the main sources of capital. It is presumed that
profitable firms have a better ability to show growth (capital growth in our case) than
those who report low-profit growth. In support of this presumption, Alchian (1950) cited
in Mishra, et. al, (2018), poses the principle of “growth of the fitter” which suggests the
fittest firms grow and survive in the market. No measure is better than profitability in
measuring the fitness of firms in a market (Mishra, et. al, 2018). But, there exist other
empirical studies that claim also a negative relationship between firm growth and
profitability (Markman Gartner, 2002; Reid, 1995; Mishra, Deb, & Tokic, 2018). The
negative result of this finding goes with the latter empirical studies.
Among other causes, the price could be one reason for the inverse relationship between
the predicting variable (profit growth) and the dependent variable (capital growth). more
specifically, firms who priced their product higher may harvest higher profit temporarily.
However, in the long run, such firms may have lost their customers due to a higher price
slowly which exposed them in turn to a reduction in sales volume. Whereas, firms
adopted fair prices may attract a large number of customers which allows them to gain
more profit than the previously specified firms, from collective and long-run higher sales
volume.
Another cause for the inverse relationship between the variables could be splitting the
firms for family or tax avoidance purposes. In the first case firms which generated more
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profit may opt to establish such new firms by splitting their resources among family
members. For Ethiopian firms, which mostly undertaking family-based businesses,
splitting firms to help their children and relatives establish a new business is expecTable.
Another scenario is firms may split their firms to avoid registering as VAT eligible firms.
Because if such a higher profit is retained to expand the existing firm, it would be eligible
sooner or later. Hence, they may prefer to keep their firms small and ineligible for VAT
registration and other complicated formalities. High profit in such type cases may lastly
be a cause of capital reduction or stagnation instead of growth. Nevertheless, all these
possible scenarios need additional in-depth study of the matter in Ethiopia.
Generally, the model sees five significant variables (Capital_Initial43, Firm_age39a,
P_Efficiency, So_Network, and ProfGrowE_N) affecting the growth of capital of at least
one of the sample cases (the merchandising, manufacturing, or both). The six variables
among the all however found insignificant factors of capital growth. Those variables are
the age of owners or managers of firms (Age_OM23a), market orientation
(Mark_Orient), Pro-activeness (Proactive), Risk-taking propensity (RiskTaki), having
business experience (BusinessEx_P28a), and sales growth (SaleGrowth_N).
Sales growth was a dependent variable as discussed in Table 4.32. it is one component in
increasing the capital of firms in two ways. Research point of view, it is expected that
firms registered higher sales could ultimately show higher capital down the road.
Whereas, from an accounting point of view, higher sales value indirectly increases the
capital of firms through profit. Capital is the result of initial capital and the net result of
the operational revenue. A profitable sale, if reinvested to the same firm increases the
capital of that particular firm. The model was formed considering these two logical
relations. Hence, sales growth mediated by profit growth was included in the growth
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model to estimate the capital growth of firms in Addis Ababa. Unlike our proposition,
neither the direct relation (sales →to capital growth) nor the indirect effect (sales growth
→to profit growth →to capital growth) has been found significant determinant in the
model (see Appendix 5A2, 5B2, and 5C for the direct, indirect, and total effect of sales
growth in the capital growth of merchandising, manufacturing and combined sectors
respectively). The result showed only insignificant and negative direct and indirect
effects on the growth of the three sample cases.
D) Factors Affecting Employment Growth
The fourth growth model studied in this thesis is employment growth. This growth
alternative is the second widely used measure of business growth in the literature.
Reviewing result of several researchers, including (Evans, 1987; Mead, 1994; McPerson,
1996; Liedholm & Mead; 1999; Liedholm, 2002; Davidson et.al, 2005; Delmar 2006),
Tirfe, (2015) found that 29 percent of studies around entrepreneurship growth used
employment change as a measure of business growth. The result makes employment
growth as the second widely utilized growth measure next to sales growth. Generally,
business enterprises in developing countries such as Ethiopia are mostly interested in job
creation and expecting the firms to grow in terms of employment. Therefore, several
growth researchers prefer to use employment as an indicator of firms’ growth (Pensrose
1959; cited in Delmar et.al, 2003).
The next Table (Table 4.34) illustrates which factors have a significant impact on the
growth of the compound annual growth rate of employees. The variable stated upward
direction in the specified Table (EmpGrowB_N) is employment growth. The growth
model for employment growth was conducted employing eight different factors. This
Table, like the other three preceding tables, illustrates the result of the merchandising,
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manufacturing, and combined sectors. Referring back to figure numbers 4-23, and
appendixes 5A1 and 5B1, the coefficient of determination which indicates how much
proportion of the model has just been explained by the employed variables, was higher
compared to other growth measures. As discussed earlier, the R2 values for the
merchandising, manufacturing, and combined data sets are 0.60, 0.78, and 0.67
respectively (see last right corner of figure 4-23, and appendixes 5A1 and 5B1). These
figures indicate that percentage of the change in the employment growth is covered by
the eight predictor variables.
Looking at the odd number rows in Table 4.34, the number of beginning employees
(Beg_Employee42), age of firms (Firm_age39a) initial capital of firms
(Capital_Initial43), and capital growth (CapGrowB_N) are four variables found
significant estimators of employment growth. The impact of these four variables on the
growth measure is significant at 0.001 level of significance. However, they have different
impacts directions. While the number of beginning employees and the age of firms found
inversely related to the growth measure, the other two capital-related variables (initial
capital and capital growth) shown positive significant results.
Specifically, when Beg_Employee42 increased by one, growth of the merchandising,
manufacturing and combined sectors decrease by 0.04, 0.16, and 0.11 respectively (see
row number one of Table 4.34). Similarly, when a firm age is increased by one, the
change in business growth measured in terms of CAGR of employees of all sectors
decreases by 0.10 (see row number three of Table 4.34). The negative impact of these
two variables indicates that firms established with more employees and older firms face
growth decline. In the first case, when firms start large in terms of employment, that
means they are bearing more costs than those start small. Even though the relationship
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between human resources (employees) and growth presumed to be positive, considering
such a negative impact is not also a theoretically strange thing to accept. One reason
which supports this negative result as said earlier is cost.
The second variable found a negative predictor is the age of firms. researchers such as
Sutton, (1997) and Nguyen et al., (2004) found no conclusive impact of firms’ age in
terms of significance level as well as the direction of impact. Nevertheless, our negative
result goes to research results from (Evans, 1987; Variyam & Kraybill, 1992; Dunne &
Hughes, 1994; Heshmati, 2001) which found that older firms experience less growth.
Theoretically, old firms are assumed to have more accumulated knowledge and business
experience. Nevertheless, they might have also existed several new firms entered the
market with new and cost-effective business knowledge which helps the firms to grow
easily.

S. Independent Dep.
Std. Std. Std.
No Variables Var P P P
Est. Est. Est.
1 Beg_Employee42 -.04 *** -.16 *** -.11 ***
2 Age_OM23a .00 .96 .00 .73 .00 .92
3 Firm_age39a -.10 *** -.10 .01 -.10 ***
4 RiskTaki .01 .36 .00 .37 .01 .6
EmpGrowB_N
5 Capital_Initial43 .01 .01 .07 *** .05 ***

6 BusinessEx_P28a .00 .57 .01 .55 .00 .81
7 CapGrowB_N .74 *** .84 *** .78 ***
8 P_Efficiency .00 .98 .01 .51 . .88
Coming to the positive predictors, we found initial capital and capital growth among in
the forefront. When the initial capital of firms increased by one, employment growth of
the merchandising, manufacturing, and combined sectors grow slightly by 0.01, 0.07, and
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0.05 respectively (see row number five of Table 4.34). The result is statistically
significant but at the same time, it is low impact size. On the contrary, capital growth
(which was the outcome variable in the C section of path analysis) found a larger
predictor than any other variables in the whole path analysis of this thesis. The
standardized estimate of capital growth on employment growth as depicted in Table
weights 0.74 for merchandising, 0.84 for manufacturing, and 0.78 for the pooled data of
both sectors (see row number seven of Table 4.34). The estimates indicate that for every
single change in capital growth there will be 0.74, 0.84, and 0.78 change in the growth of
the three firms respectively as measured in terms of employment.
The result indicates that most of the change in employment growth is attributed to another
growth measure. Both the variables (Capital_Initial43 and CapGrowB_N) found positive
predictors of employment growth are variables related to capital. While the former (initial
capital) points the amount of investment initially made to establish the firm, the latter
depicts a percentage change of capital over years calculated using compound annual
growth rate. In this regard, both capital growth and employment growth used one
common factor in calculating their values; the age of the firm. As a result, it is apparent
to see a strong relationship between the two variables.
Based on the impact which illustrated the same direction, but big differences in
magnitude, we can draw two conclusions. The first one is, firms started their business
with relatively big capital have a more growing tendency than those who do not. Starting
big in terms of capital lets businesses to show more employment growth. The second
conclusion is, the exaggerated magnitude of capital growth on employment growth might
have happened due to the reason that they both use common multiplier (age) for their
calculation. The higher correlation coefficient reported in the third row of appendix 4.5
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supports the assumption that that the reason for such an inflated impact of the variable is
the common multiplier it has with employment growth. Since, both the variables are a
result of the age factor, they show high correlation as can be seen in the specified
appendixes.
Overall, even though, employment growth becomes the better-explained model
compared to the other growth alternatives, only one variable account for almost all of the
change occurred in the growth measure. That is capital growth. the remaining four
variables were not found significant estimators of employment growth as evidenced by
their insignificant result illustrated in the even rows of Table 4.34 below.
All the results discussed in the previous few paragraphs are regarding the unmediated
(direct) impact of the variables. However, some variables affect employment growth
indirectly through capital growth sales growth, and profit growth. Table 4.35, compiled
using the direct/indirect results of the structural equation model, depicted in the last part
of this thesis (in appendices 5A2, 5B2, and 5C), illustrates the mediated and to the total
effect of some 16 predictor variables.
After verifying the significance of the relations between the mediating and predicting
variables, four have identified as illegible for discussion in this section. Those are the
social network of the owners (So_Network), age of firms (Firm_age39a), the initial capital
of firms (Capital_Initial43), and perceived efficiency of the owners or managers
(P_Efficiency). Except for firm age, all of the variables found significant are individual-
level factors.
The highest direct and indirect effect was seen among these variables is Firm_age39a. As
can be observed in Table 4.35, the age of firms, mediated by capital growth have -.32
(direct -.08 + indirect -.24) impact on the growth of merchandising firms. For the
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manufacturing sectors, the mediated effect of the variable accounts -0.4 (i.e. direct -
0.1 + indirect -.33). Looking at the combined data set, the total impact of Firm_age39a
on employment growth is -.36 (which is a total of the direct impact, -.08 and indirect
impact, -.28). Interpreting the last figure for pooled data set, the negative magnitude (-
.36), indicates that due to an increase in the age of a firm by 1 standard deviation there
will be a 0.36 reduction in employment of the firm. Most of the relationship between the
age of firms and employment growth is maintained through the indirect path. which
means, the age of firm mediated by capital growth covered much of the impact (-0.28) of
the total effect (-0.36) on employment growth.
The researcher puts some possible causes for the relationship among the variables to be
inverse relation. The tendency for older firms to scale-back from their current size due to
several reasons is assumed to increase than it will do in the new firms. Firms might reduce
their employees due to change from the labor-intensive business operation into a more
moderate technology-intensive way of operation. Because the manufacturing and
business operation gets advanced from time to time, technologically. The other possible
reason for reverse relation might be the splitting of firms at the latter ages. Splitting in
the case of Ethiopian firms is could be caused to establish a separate business for family
members. This is a common trend for most family-based Ethiopian firms to distribute
their wealth among young members of the family.
The impact of social networks on the employment growth of the target firms was
estimated in two-step mediation. Social network mediated by sales growth and
subsequently, sub-mediated by capital growth shows a positive impact on the
employment growth of the target firms.
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Table 4.35 Standardized Effects (All Data - Structural weights) of Variables on
Employment Growth
Tot Dire Indire Tot Dire Indire Tot Dire Indi
al ct ct al ct ct al ct rect
Merchandising Manufacturing Both Sectors
1 BusinessEx_P28a ca .02 -.01 .03 .06 .01 .05 .03 .03
2 So_Network sa ca .05 . .05 .03 . .03 .04 . .04
3 Proactive sa ca -.01 . -.01 .01 . .01
4 SaleGrowth_N pr ca -.02 . -.02 -0 . -.03 -.02 . -.02
5 ProfGrowE_N ca -.04 . -.04 -0 . -.01 -.03 . -.03
6 Age_OM23a ca -.01 . -.01 -0 -0 -.02 -.02 . -.02
7 Firm_age39a ca -.32 -.08 -.24 -0.4 -0.1 -.33 -.36 -.08 -.28
EmpGrowB_N
8 Capital_Initial43 ca -.01 .01 -.02 -.1 .07 -.15 -.05 .05 -.1
9 RiskTaki ca .02 .01 .01
10 P_Efficiency ca .05 . .05 .03 .01 .02 .04 . .04
11 Mark_Orient ca .02 . .02 .04 . .04 .03 . .03
Where: sa= sales growth, ca= capital growth, and pr=profit growth
For the combined data set the standardized estimate values stated in row two of Table
4.35 0.04, indicate that when the more owners/managers of the firms believed that they
have accumulated sufficient social network during their carrier, the more will be their
tendency to increase their employment intake. Which meant by itself, the growth of firms
measured in terms of employment. Social networks found significant only as an indirect
effect on employment growth.
Profit growth and initial capital of the target firms, and perceive efficiency business
owners/managers have also found among the variables having some poor mediated
impact through capital growth on the employment growth the target firms. Nonetheless,
the magnitude of the mediated relation is so small to discuss.
Generally, the path analysis in 4.7 discussed four growth measures and their
determinants. Those were: perceived growth, sales growth, capital growth, and
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employment growth. The models for these variables have been conducted considering
the firms separately, sector-wise: as well as a pool of both manufacturing and
merchandising sectors. As discussed from A to D, the determinants presumed to estimate
all these alternative measures haven’t been found significant in all cases. More or less,
when a variable was found significant for the merchandising sector in one case, that
variable also appeared significant determinant for the manufacturing sector, in several
cases.
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Chapter Five
5 Summary, Conclusion, Limitation and the Way Forward
5.1 Introduction
This chapter concludes the study, discusses limitations and points out the direction for
future studies. To show how every conclusion was drawn from each finding, the summary
and conclusion of the study are discussed under one part. The summary includes issues
discussed in four parts of chapter four. Therefore, section 5.2 presents the summary and
conclusion of the study; Section 5.3 highlights the limitation of the thesis, and section 5.4
provides direction for further study.
5.2Summary and Conclusion
Comparing the growth rate of the manufacturing and merchandising sector the summary
of the discussion is stated as follows. Before the data transformation for normality, the
growth of firms measured in terms of compound annual growth rates (CAGR) of
employment, capital, and sales value showed a positive annual growth rate, over sample
years of each firm. The capital growth rate of the manufacturing sector was significantly
greater than the capital growth rate of the merchandising sector. Nevertheless, the
magnitude of the difference as measured with Cohen’s D indicated that there is a slight
difference in the capital growth of the two sectors. However, after transformation for
normality, the small difference observed during the original data analysis was
disappeared. Overall, there was no significant difference among all the growth measures
comparing the merchandising and manufacturing sectors.
255
With regard to the identification of business challenges of the Ethiopian firms, the result
for the merchandising sector identified five severe variables: higher interest-rate,
continuous devaluation of the currency, Shortage foreign exchange currency, Complexity
of business regulations, and lack of support from the government in the study appeared
to be among the top severe challenges. Both the result from the analysis of the
manufacturing sector and the combined data of both sectors, shares three challenges with
the result merchandising sector. Higher interest-rate, continuous devaluation of the
currency, Shortage of foreign exchange currency have been identified among the five
challenges. The remaining two: lack of experience in financial intermediaries and price
volatility were also among the top five sever challenges compared to the 28 challenges
which had been under study. Converting into dummy variables, all these top challenges
were sent to the nominal interval test of the relationship.
Before conducting taking categorical variables into the last growth model test of the
relationship between 27 nominal dependent variables and the four dependent interval
variables have been conducted to select a sufficiently correlated variable for the impact
analysis in SEM. However, except for a weakly correlated few variables, all of the
relations between the categorical variables and the four dependent variables have not
found significantly related. Hence only 5 out of 27 variables have been included in
modelling the estimation the four growth alternatives
Before putting all the factors verified reliable and valid in the preceding process into the
SEM, all the dependent variables go first through correlation analysis. The SEM was built
with factors showing significant relation with their respected measures of growth
(employment growth, capital growth, sales growth, profit growth, and perceived growth).
consequently, the factors affecting each measure of growth were not exactly similar. The
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SEM hence holds five standalone models. However, since there were dependent variables
in one model which also required independent variables for the other model, the SEM
appeared to be a large model, by holding five dependent variables.
In summary, 67 percent of employment growth, 32 percent of perceived growth, 18
percent of capital growth, and 2 percent of sales growth of firms illustrated in the model
stated under figure 4-23 is explained by the 8 factors, 16 factors, 11 factors, and 8 factors
respectively. Thus, factors employed to estimate employment growth have more
explaining power than factors used to predict the other growth measures. The growth
method analysed based on owners’ and managers’ satisfaction with their business
performance (perceived growth) ranked second in terms of how the model was explained
using the predicting variables. The third growth model is a model based on the wealth
maximization need of owners (capital growth). this growth model has the third R2 value,
which indicates the portion of growth change estimated by the specific factors lower than
change explained in the employment and perceived growth cases. The poorly explained
model among the four models is sales growth. The factors used in estimating the change
of sales growth have a negligible explaining power (i.e. about 2 percent).
Perceived growth was modeled putting 18 dependent variables. Totally, about 34 percent
of the behavioural measure of growth (perceived growth) was affected by these 18
variables. Six of these variables (Need and preparedness for growth, Pro-activeness,
Dynamism, Organizational Learning, Government Regulation, Government Utility
Service) have a significant positive impact on the growth of the large and medium
enterprises in Addis Ababa Ethiopia. The effect of these six variables was found equally
important for the manufacturing, merchandising, and even when the analysis was made
combining both sectors (pooled data set). Next to these six variables the extent of
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formalization the firm follows and the Risk-taking behaviour of their management have
also significant (at 5% significant level) positive impact for all of the sample cases.
However, there are also variables affecting the perceived growth of a particular sector
but not the other. For instance, Having Related Business Experience significantly affects
manufacturing positively while in the case of the merchandising sector, the effect became
positive but insignificant. when the data for both sectors get combined, the result became
positive again. The factor Market Orientation on the hand shows result reverse to the
result of business experience on perceived growth.
Growth measured in terms of Sales Growth was modeled using eight independent
variables. These variables have not explained the model sufficiently (i.e. only 2 percent
sales growth was attributed to the variation occurred in these nine variables. Among them,
Government utility service, Formalization, and Pro-activeness plaid a significant role in
determining the sales growth of both firms in the manufacturing and merchandising
sector firms. Sales growth was also used to estimate the profit growth of the sectors under
study. Even though the model was designed to include the indirect impact of the other
variables, the result indicated that only sales growth impacts the growth of profit
significantly firms in Addis Ababa.
Totally, 12 percent of the capital growth was explained by the independent variables
employed in this model. The model sees five significant variables (Capital_Initial43,
Firm_age39a, P_Efficiency, So_Network, and ProfGrowE_N) affecting the growth of
capital of at least one of the sample cases (the merchandising, manufacturing, or both).
The six variables among the all however found insignificant factors of capital growth.
Those variables are age of owners or managers of firms (Age_OM23a), market
orientation (Mark_Orient), Pro-activeness (Proactive), Risk-taking propensity
258
(RiskTaki), having business experience (BusinessEx_P28a), and sales growth
(SaleGrowth_N).
Out of the eleven variables employed to explain the growth of firms measured in terms
of the compound annual growth rate of capital (capital growth), two factors (Perceived
Efficiency, and Social Network) have a positive impact. The age of firms affected capital;
growth of both merchandising and manufacturing sector firms negatively as a separate
dataset and when combined.
The strange finding in this model is the unexpected negative results of initial capital on
the capital growth of the firms. The finding indicates that firms started with more capital
grow less than those who have started with lesser capital. This might be the
overconfidence that might have been developed in the view firms having more capital to
start. If they think they have sufficient capital at the beginning, the caution every business
required for decision making might be taken less carefully. As a result, they might not
save and grow equally or more than those they exert much care to their limited capital.
Lastly, the fourth growth measure explained 67 percent of its change in this model is
employment growth, which had been constructed out of eight variables. Almost all of the
explaining power was due to the change in capital growth. This indicates that both the
manufacturing and merchandising firms tend to hire more employees when they maintain
more capital in their business enterprises. Initial capital was also found positive and
significant indicator of employment growth. Against the hypothesis which stated that the
age of firms will not have any effect on the growth of firms, the age of the firms seen as
a significant factor impacts employment growth negatively. The number of beginning
employees has also shown a negative impact on the employment growth of the two
sectors separately and combined.
259
The negative result might be due to the two facts. On the one hand, firms operating for
logger time might have started with a large number of employees during labor-intensive
technology time. However, since new labor efficient technologies having been
introducing from time to time, at time passes, firms might tend to reduce their employees
instead of increasing. Even firms starting with a higher number of employees might
reduce their employees due to new technologies. On the other hand, the more firms got
older they are closing to the economy of scale. Firms at this level might not tend to expand
beyond their economy of scale, otherwise it might lead them to incur more losses.
Generally, the path analysis in 4.7 discussed four growth measures and their
determinants. Those were: perceived growth, sales growth, capital growth, and
employment growth. The models for these variables have been conducted considering
the firms separately, sector-wise: as well as a pool of both manufacturing and
merchandising sectors. As discussed from A to D, the determinants presumed to estimate
all these alternative measures haven’t found significant determinants in all alternative
growth cases. However, when a variable was found significant predictor for the
merchandising sector in one case, that particular variable also appeared significant
determinant for the manufacturing sector. This was observed for most of the significant
variables.
Employment growth explained more than (67 percent) the four growth alternatives in this
study. However, most of the change in employment growth is attributed to another growth
measure (capital growth). Based on the impact which illustrated the same direction, but
big impact size, we can draw two conclusions. The first one is, firms started their business
with relatively big capital have a more growing tendency than those who do not. Starting
big in terms of capital lets businesses to show more employment growth. The second
260
conclusion is, the exaggerated magnitude of capital growth on employment growth might
have happened due to the reason that they both use common multiplier (age) for their
calculation. The higher correlation coefficient reported in the third row of appendix 4.5
supports the assumption that that the reason for such an inflated impact of the variable is
the common multiplier it has with employment growth. Since, both the variables are the
result of the age factor, they show high correlation as can be seen in the specified
appendixes.
Overall, even though, employment growth becomes the better-explained model
compared to the other growth alternatives, only one variable account for almost all of the
change occurred in the growth measure. That is capital growth. the remaining four
variables were not found significant estimators of employment growth as evidenced by
their insignificant result illustrated in the even rows of Table 4.34 below.
The impact of a firm’s age on employment growth was found a negative impact. The
researcher put some possible reasons why such an inverse relationship existed while long
stayed firms are expected to perform better due to the experience presumed they
accumulate through time. One of the reasons could is the tendency for older firms to
scale-back from their current size. Scaling back may take place for several reasons. For
instance, old firms may sack their employee and decide to stay small for effective control.
Additionally, old firms suffered due to labor-intensive businesses need to compete with
new starting firms with new technologies. At this time firms may prefer to reduce their
employees due to change from the labor-intensive business operation into a more
moderate technology-intensive way of operation. The manufacturing and business
operation gets changed from time to time, technologically. The other possible reason for
the reverse relationship between the variables might be the splitting of firms at the latter
261
ages. Splitting in the case of Ethiopian firms could be caused to establish a separate
business for family members. This is a common practice for family-based Ethiopian firms
to distribute their wealth among young members of the family.
5.3Limitation of the Study
This study was about measuring the growth of firms and understanding the factors played
a significant role in the observed size change of the firms. Throughout our study, there
have been limitations regarding getting a black and white rule regarding data, unit of
analysis, time of data, and other research related issues. Limitations are an inbuilt
problem of conducting studies. Therefore, this part pointed out some of the limitations
this study couldn’t solve theme which might need consideration in future studies.
i. Dynamic Nature of Firms Growth Process
Some consider the growth of business enterprises is a long term process. Factors affecting
the growth of a particular firm are not constant and specifically defined. Rather, they vary
over the life of the enterprise Delamar et al (2003). Attitudes and motivation of owners
to grow or not to grow could be changed due to the condition in their environment. As a
result, Delamar et al (2003) suggested not to depend on first and last year data points for
collecting growth-related data. Because this approach couldn’t fully capture the process
of growth. This means that the behavioural change of owners and managers, the long
term business fluctuations, the fortunate events, and sudden decline a firm experienced
in between the two data points could not be captured only by collecting from beginning
and end year data points. For this reason, “it may be unwise to assume that nothing, but
only change in size, has occurred during the growth process” (Davidson, et al, 2005).
Consequently, Davidsson, et al (2005) suggested researchers have to conduct the firm
growth studies based on longitudinal data.
262
ii. Unit of Analysis Related Limitation
While it may be possible to use the same distinguishing feature (i.e., firm name, contact
individual, organizational number) to follow up the actual existing firm itself may not be
similar to the firm that was first studied. There are several reasons for this. First, firms
change legal form and parental/subsidiary status over time. For instance, one step in the
development of a firm may be to become incorporated Levie (1997) Cited from McKelvie
& Wiklund, (2010. As part of this process, the legal name of the firm may remain the
same, but its organizational number may change. This legal change may also be that the
firm becomes a subsidiary of another firm or develops a subsidiary or holding firm. As
these subsidiaries are considered new firms, their characteristics (i.e., sales, capital,
number of employees) may not be encompassed into the parent company’s financial
record. These legal changes, including changing legal form or creating new subsidiaries,
provide challenges for identifying the actual firm under analysis and how growth within
the unit of analysis may be difficult to capture.
iii. Sample Size and Problem of Generalization
Our sample size was determined considering the limitations the scholar have in resources
and time to collect and administer the required data. Thus, it was collected only from two
sectors in the capital city of Ethiopia. It is not only sector-wise but also the sample was
limited to merchandising and manufacturing sectors listed in specific databases. Hence
the data didn’t include firms which did not available on the selected websites.
Consequently, as the sample is not representative of all sectors and all enterprises within
the selected sectors, the result does not allow generalization to all fiMLS in Addis Ababa
city, Ethiopia. Therefore, further research may be required with a larger sample from all
Ethiopian states and diversified sectors which will help future study considering region-
263
specific policies and political environment as well as the cultural differences of business
organizations.
iv. Self-Reported Bias
The findings of this research were based on the owner’s/managers’ subjective perception
based judgments. Individual owners/managers have their own perceptual bias and
cognitive limitation in understanding and communicating the dynamics in their business
organization. Owners or managers view their business as an extension of personality
(Kroeger, 2007). Though objective data is generally difficult to get from firms, further
research may consider the use of objective data to enhance confidence in the reported
data. Databases need to accumulate comprehensive and rich data so that researchers stop
collecting biased subjective data from managers and owners.
v. Erratic, characteristics of firm growth
A finding by Lee, Brown, & Schlueter, (2016) strongly suggest that growth is more likely
to be unpredicTable, characterized by short-term bursts of rapid growth followed by
periods of low or no growth and even decline. Our study depends on two data points: the
beginning and current years of operation. Growth, in contrast, needs long term
understanding of every single cause contributed to the size change of business
organization. It is not easy, if not possible to spot the erratic turning point for every
change in the size of a business organization with such two-point research data.
Understanding and capturing erratic changes in an organization is hard to recognize and
record, even by the owners and managers. Such kind of erratic changes in a business
organization couldn’t be grasped by a study that depends on a spotted few data points.
Hence, it needs a continuous observation of such dynamics in the business environment
and individual firms.
264
vi. Idiosyncratic and unpredictable
The existence of argument in the research arena didn’t hamper stakeholders from using
the existing results of firm growth studies. They make decisions and assist their firms
based on the suggestions from the study results. They make a decision to support their
business based on the suggestions whether they go with their idiosyncratic business
environment or not. However, it is difficult to determine appropriate policy initiatives,
given their idiosyncratic and unpredictable requirements (Fischer and Reuber, 2003;
Mishra, Deb, & Tokic, 2018). The present study conducted in Ethiopia may have been
impacted by some country-specific conditions which suggest a need for a cross-country
study using the existing growth determinants identified in this study as the critical factors
regarding the firm’s operation and its growth.
5.4 Suggestions for Further Research
Given the dynamics in the business environment, the need for searching new mechanisms
and contingent conditions for the growth of firms is not likely to be saturated in the near
future. Instead, the study of firm growth is likely to remain an interesting area of research.
Hence learning from the result of our study, it is better to put forward some suggestions
on which future studies on business growth need to consider.
Firstly, to solve the problem of change in names and structure of firms, on one hand, the
databases which collect data for searchers need to devise a mechanism that can account
for the change made throughout the life of the firms. On the other hand, researches need
to consider how the firms are going to study evolved throughout their business
undertaking. The consideration could help in capturing more hidden data worth including
the regular variables used in analysing firm growth studies. These may include: change
265
in name of the organization, change in ownership, split or merger, economic ups and
downs occurred in the business environment during the proposed study years.
Secondly, the study was limited to a self-reported reported data for the evaluation of the
growth firms and their determinants. In practice, however, such kind of data might lead
to depend on the analysis and judgment on perception, subjective, and biased views of
owners and managers about their businesses (Stam, E. 2010). On the one hand, the view
managers and owners have to their business might be subjective. Additionally, in the
Ethiopian case, in the existence fear for tax intelligence, owners or managers based data
the dependability of the tax documents might be misleading. Hence, future studies should
create a new way of getting real business information for the study of firm growth. For
instance, the existing databases need to collect an inclusive and rich data so that
researchers stop collecting biased data from managers and owners.
Furthermore, factors used to estimate different measures of growth in this study have
been studied as alternatives of growth measure by which one can substitute the other.
Nevertheless, not all determinants have an equal important role in estimating the different
growth measures. Thus, future studies on the growth of business enterprises should focus
on specific factors affecting a particular growth measure rather than considering all
factors as a substitute used in determining every growth measure.
The other issue in business growth is, the difficulty to capture unpredictable growth and
causes of growth changes experienced in every business. Sometimes firms show an
erratic high growth, while other times plunge unexpectedly to a new record low. The
market is not such a perfect thing not only in the underdeveloped country, Ethiopia but
throughout the world. In such a condition, it is not easy to capture how the growth of
firms have come to be realized. Even the owners or managers might not recognize what
266
factors are playing more in the growth of their firms. Either they might not have full
knowledge of it, or even if they have the awareness, they might lack control over such
unpredictable external factors. they can only grab what is in the ground. Future
researchers should have to consider ways of identifying growth occasions in such
unpredictability of growth events.
Besides, the idiosyncratic nature of businesses and their heterogeneity limits the complete
understanding of growth and growth determinants using averaged based estimates.
Hence, future studies could contribute better in identifying categorizing the idiosyncratic
attributes of firms rather than estimating growth with general factors developed to capture
a specific business environment.
267
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Appendixes
Appendixes: Data Collection Instruments Questionnaires
Appendix 1A: Survey questionnaire -English Version
Dear Respondent
First of all, I would like to thank you in advance for your willingness to sacrifice your
priceless time in filling this questionnaire. At the same time, I would like also to tell you
how valuable your contribution would be for the success of this research work. It is your
experience, your view, and your opinion regarding the business environment and its
success and failure factors that make the business grow. After your responses are
analysed the result will help in enriching the extant literature which in turn benefits
everyone who needs to know bout the business environment and their growth
determinants.
Purpose of this questionnaire

Dear respondent: Before I come to specify the need for this research questionnaire, it is
better to introduce myself. I am a Ph.D. student conducting a thesis in the field of Finance
at Kalinga Institute of Industrial Technology University (KIIT) in the school of
management in the city of Bhubaneswar India. This questionnaire intends to collect your
business experience concerning the items provided in this survey material for the purpose
of writing a thesis work as it is required to complete a doctoral degree. Without your
cooperation, my Ph.D. work will not be realized as it is expected.
Hence, my respected respondent, I would like to request you once again that to
take some of your invaluable time and fill the questionnaire patiently. Most of
which are presented in the form of alternatives that would be filled by ticking on
the boxes or cells of each statement at every Table. As it is not required to mention
your company name, your confidential responses were kept secret and served only
for this doctoral thesis purpose.
Instructions
 Please complete this questionnaire accurately and objectively. In the absence of an
option that accurately reflects your views, please choose the answer that seems
306
relevant, and add any comment or explanation that you deem useful to illustrate your
answer.
 Most questions can be answered simply by marking tick marks on the boxes
embedded within the Tables which questions are holding.
 The results of this research will be presented in the thesis to be submitted to KIIT
University College of Management, as required by the doctoral degree. Hence, feel
free to share your data and opinion since it was used only for educational purposes.
 If you want a copy of the results of the study, please fill out your name, address, or
e-mail on the last page of the questionnaire.
Name of the Scholar researcher: Mesaud Muhamed Hagos
Email: mosood98@gmail.com Mobile phone: +251911080682
Your Position held in the company:(Please tick the box that is

relevant to you)
Owner
Manager
1. Please indicate your opinion regarding each statement by putting tick mark in the
appropriate level of agreement in right side boxes
SA = Strongly agree; A = Agree; D = Disagree; SD = Strongly disagree; NO = No
opinion
Perceived Success SA A D SD NO
a The business is very successful today
b Sales growth position relative to the competition
c Satisfaction with the sales growth rate
d Market share gains relative to the competition
e We are satisfaction concerning sales margins
Our criteria for resource allocation generally reflect
e
short-term considerations
We emphasize basic research to provide us with a future
f
competitive edge
g We forecasting key indicators of operations
h We made formal tracking of significant general trends
i We do a "what-if" analysis of critical issues
307
2. Please put your level of agreement on the following strategy related statements by
putting a tick mark on the right side of this Table
opinion
SA A D SD NO
Our business activities can be generally characterized as
a
risky operations
When making major decisions, we seem to adopt a more
b
liberal view
Easily approval of new projects rather than on a "stage-
c
by-stage" basis
A tendency to support projects whether the expected
d
returns are certain or not
e Sacrificing profitability to gain market share
f Cutting prices to Increase market share
g Setting prices below the competition
Seeking market share position at the expense of cash
h
flow and profitability
3. Please indicate your level of agreement on the following risk-taking behaviour-

related statements by making a tick mark on the appropriate boxes in front of every
statement.
opinion
S S N
A D
A D O
a I love gambling
b I dare to take action, even though it was risky
c I am ready to take risk
The result of my business is strongly dependent on my
d
effort
I often have a feeling that I cannot influence the thing that
e
happens to me
Often making a decision can even be done by tossing with
f
a coin.
g Talking to strangers is easy for me
Not to plan too far ahead, since many things turn out to be
h
a matter of good or bad fortune
308
4. To what extent your business decisions agree with the following statements?
(please indicate your opinion by making a tick mark on the appropriate cell of each
statement)
opinion
Centralization, Decentralization, Standardization,
SA A D SD No
Formalization, Specialization
a Most decisions have to be made by managers
b Employees are allowed to make a decision themselves
c The intended result of the work is specified in advance
d The working procedure is written down
e Every employee does some specific tasks
5. As a manager or owner-manager of this business, describe your entrepreneurial and market

orientation by marking on the box of each statement you dare it to represent your opinion.
S S N
Entrepreneurial and Market orientation A D
A D O
a We introduced new products or services to the market or our business
We introduced new or significantly improved methods of
b
manufacturing or offering services?
We introduced new or significantly improved logistical or business
c
support processes.
We spend on formal research and development activities, in-house, or
d
with other companies.
e Make high demands upon yourself when working
The excitement of creating something new whose success depends on
f
me.
g We measure customer satisfaction structurally and periodically
h Helping and satisfying customers is the most important for us.
i We often discuss how competitors do
We are always busy with customer needs that will emerge after some
j
years.
k We focus on acquiring new customers with new needs.
6. Do the following statements represent your need and preparedness for the growth
of your business.
(Please indicate your opinion on each statement putting a tick mark the boxes)
opinion
309
S S N
preparedness for growth A D
A D O
a We are prepared for strong growth in our business.
With the current organization structure and business
b
resources, we can easily grow with 20%
Within our company, everyone knows that we want to grow
c
fast.
d Even if I have achieved something, I want to become better
e I like to compare myself with others
f I do everything to reach my goal
I do not want to lose a close control of my business by
g
expanding more
7. Did you agree with the following statements regarding your efficacy and skill to
run and grow your business? please indicate your opinion by making a tick mark
on the appropriate cell of each statement)
S S N
personal efficacy and skill A D
A D O
a I can make good strategic choices
b In discussions, I come up with the important part
c I am open to new and non-traditional ideas.
I usually lead the implementation of new ideas,
d
products/services, and processes
e I ask questions that nobody else asks
f I set up goals for myself and work according to these goals
I concentrate on the work that has to be done to achieve my
g
goals or the company goals
h We Plan the operations of the business
i We Possess expertise in technical or functional areas
j We Scan the environment to look for opportunities
k We Organize resources
l We Use specific techniques/tools relevant to the business
We create a positive work climate through discussion and
m
problem-sharing
310
8. Please state your opinion concerning the following five statements by putting a tick
mark on the level of the agreement stated in the right side of (SA = Strongly agree; A
= Agree; D = Disagree; SD = Strongly disagree; NO = No opinion)
opinion
SA A NO D SD
Constantly seeking new opportunities related to the
a
present operations
Usually, the first ones to introduce new brands or
b
products in the market
Constantly on the lookout for businesses that can be
c
acquired
Usually, be ahead of our competitors by expanding our
d
capacity
Constantly seeking new opportunities related to the
e
present operations
9. How do you evaluate the image your customers developed to your products/service
and the organization learning you experience during the business undertaking.
opinion
Customer Image SA A D SD NO
a Price increment does not affect demand for our products
We build a branded image upon our customers
b
(acquire/developed/)
customers prefer to buy our products among similar
c
products in the market
d Everyone here agrees with the common goal
e We have a strong team feeling
f Employees' training is an investment, it’s not a cost
Learning is according to us the key to making things
g
better
We make enough free time to learn from the mistakes we
h
made
We study successful and unsuccessful business activities
i
and discuss with each other about it
311
10. The statements in this Table are concerning how do market dynamism, competitive
intensity, heterogeneity of customers’ views, inflation, demand, and environmental
factors may affect your business growth. How do you agree with the statements? Please
tick on the boxes of each statement you dare it going with your opinion. SA = Strongly
agree; A = Agree; D = Disagree; SD = Strongly disagree; NO = No opinion
S S N
market dynamism, A D
A D O
a There is uncultivated market potential in our market
Profit and growth opportunities grow in a higher degree in our
b
market
c Our most important market grows fast
d Customers constantly look for new product/service
e Products and services become old very fast in our market
In our market, you must often update technology to stay in the
f
market.
The technology that our business is based on, is not subject to
g
large changes
h Questions and preference of customers are unpredicTable
i Customers differ strongly in buying behaviour
Our market share is threatened by intensive competition in the
j
market.
k We have a competitive advantage over our competitors
l Our market is characterized by strong competition.
11. How do you describe your opinion on the trust your business built with your
customers? (please put a tick on the boxes)
opinion
S S N
Trust and Loyalty A D
A D O
We have a desire for a long-lasting relationship with the
a
customers
b Customer orientation is the value of our firm
We share the objectives, values, and culture of our firm with
c
our customers
d We believe in customers reputation
e The owners are related to family
f Family members determine major decisions
312
g The managers are related to family
h Would you describe your company as a family business?
12. Based on your business experience how do you agree on the following social and
business network-related statements? (Please tick on the appropriate cell of each
statement to your experience)
opinion
S S N
Social and Business Network A D
A D O
We enjoy high levels of inter-firm cooperation with clusters of
a
business around us
b We made business activities Jointly with other friendly firms
We share machinery/business premises/input/ with relatives’
c
and friends’ firms
d We develop long term linkage and agreements with buyers
We develop long-term relationships with suppliers through
e
repeat purchases.
We spent a large portion of our sales on maintaining a social
f
network of extended family
Our business located far from an easily accessible area of
g
relatives to avoid spending on social networks and duties
We have a professional affiliation/business association that
h
supports the business.
i We have access to key contacts and relevant networks
We have many helpful colleagues/friends/ family members
j
who support the business.
13. Based on your business experience, what is your opinion on the following
statements? (tick on the boxes)
opinion
V V N
Corruption H L
H L O
Informal payments to public officials are required “to get
a
things done”
we prosecute public official seeking us bribe for things get
b
done
If there is no choice other than informal linkage to get things
c
done, we do it for the sake of survival
313
Undertaking business without paying bribes to public
d
officials is not possible
14. How would you grade the quality of service offered to your business by the
following institutions? (Please select the appropriate answer by ticking the
appropriate box)
VS = Very satisfactory; S = Satisfactory; NS = Not satisfactory; VuS = Not very
satisfactory; N = Neutral
Government Services VuS uS N S VS
a Municipality services
b Quality and Standard Authority
c Transportation office
d Customs and clearance office
e Water suppliers
f Security service and Police
g Chamber of Commerce
h Court for businesses
i Tax office
j Electricity suppliers
k Ownership transfers services
l Telecommunication services providers
15. Based on your experience in running the business, please evaluate the difficulty
you have encountered with the following regulations and government-related issues?
(Please indicate your practical evaluation by making a tick mark on the appropriate
box/cell o the Table at every statement level)
VE = Very easy; E = Easy; D = Difficult; VD = Very difficult; NO = No opinion
Government Regulation VE E N D VD
a Licenses to start of business
b Regulations on foreign trade (import-export)
c Regulations on employment
d Health & safety regulations
e Tax regulations
f Environmental regulations
g Foreign currency acquiring regulation
16. The following three statements indicate if your business incurred any expense
encountered any loss due to criminal activities. Hence please put a tick mark on the boxes
in front of every statement
Yes No
314
Expense paid for security service (example: security equipment and
a
professional services)
Losses due to theft, robbery, vandalism on this establishment’s
b
premises
c losses recorded due to theft done by the business employees
17. Circle one of your major customers based on the sale value
Customer type Code
a walk-in customers 1
b Private Businesses 2
c governmental organizations 3
d Miscellaneous Customers 4
18. How series did you assume the following legal, economic, and political related
challenges to your business growth?
Rate the following possible growth barriers if your firm growth is bared from or delayed
of the obstacles.
1=No obstacle, 2= Minor obstacle, 3=Moderate obstacle, 4=Major obstacle, 5=Very
Severe Obstacle
Keep up with technological
a Access to new market o
development
The overall growth of market
b p high collateral requirements
demand
experience with financial
c Access to overseas markets q
intermediaries
Finding production/sales
d Getting the cash flow r
location/premises
Difficulties with inventory and
e high interest-rate on borrowing s
suppliers
An entrepreneur takes
Get the right knowledge/suiTable
f responsibility for all business t
technology
activities
Lack of interest in free banking
g u Contraband goods and services
service
Competing with informal Instability of regulatory policy
h v
businesses reforms
Competing non-VAT Registered Attract and keep qualified
i w
businesses personal
Need of much time to deal with
Poor Accounting system of the
j x Government regulation
country
requirement
315
Set up a suitable organization
k Inflation and price volatility y
structure
l Continuous evaluation of Birr z Political Instability
Informal payments to public
m Insufficient foreign currency ao officials to get things done
(Corruption)
Lack of support from the
n Higher tax rate ap
government
19. Please put a tick mark on the alternatives indicating your agreement or disagreement to
the following financial source related two statements
Source of capital (finance) (Diversified source of Finance) yes No
Borrowed from banks and non-bank financial institutions including
a microfinance institutions, credit cooperatives, credit unions, or finance
companies
b Transferred from moneylenders, sister businesses, friends, relatives, etc.
20. Please put a tick mark on the ‘yes-no’ boxes found next to each statement
stating your experience related to branches, supports, and diversification level.
Branches/Expansions /Diversification Yes No
a The firm has branches or sister business Inside the country
b The firm has branches or sister business Outside the country
c The firm gets support from firms established by relatives/friends
d The firm provides support to dependent relatives/friends
21. Make a Tick mark on the appropriate internal structure of your business if any.
Division structure Mal Hierarchy Structure Male Function Structure Male I Indirect
structure Male
Other
23. Your age: 24. Your gender: Male Tick Female Tick Male
25. Your educational level?
26. How many years of working experience do you have before this business?
27. your previous work experience relevant to your current business?

Yes Tick No Tick
28. Did any of your parents own a business? Yes Tick No Tick
29. What is the educational level of your father?
30. What is the educational level of your mother?
316
31. Legal status of the business:
32. Which sector does your business belong to?

Manufacturing Tick Merchandising Tick Male
33. Which market does your business engage in?
New market Tick Growing Market Tick Matured Market Tick Shrinking market
34. Type of products your business mostly doing:
35. In which industry your business is engaged in
36. Where is the business located?
37. This business is: Completely family-owned Tick Partly family-owned Tick
Completely Privately-owned Tick
38. Did your company merge with others in the past 3 years? Yes, Tick No Tick
39. Firm age How long has the business been in operation?
40 How many staff does the business employ in 2018?
41. How many employees had the business in 2015?
42. How many staff were at the starting stage of the business?
43 Starting capital of the business?

44 Capital of the business in 2015?
45 Current Capital of the business?
46. What is the current annual turnover/Sale of the business (In Birr)?
47. What annual turnover/Sale of the business in 2015?
48 Current year profit ___________________________________________________

49 Profit 2015 _________________________________________________________
50 SUGGESTIONS & COMMENTS
317
Please write any suggestions or comments you want to add regarding the topics that have
been addressed in this questionnaire or any other subjects related to the growth or success
of Medium and large business organization in Ethiopia
318
Appendix 1B: Survey questionnaire -Amharic Version
የጥናት መጠይቅ
መግበያ
ለተከበሩ የጥናቱ ተሳታፊ፡ በመጀመርያ በዚህ ጥናት ያለዎትን የቢዝንስና የንግድ ተሞክሮ
ለማካፈል የተከበረ ግዜዎትን ከፍለው በመስጠት የተሳታፊነት ፍቃደዎን ስለሰጡኝ እጅግ በጣም
ላመሰግነዎት እወዳለሁ፡፡ቀጥየም እርሰዎ እንደ ድረርጅት ባለቤት ወይም አስተዳደር በዚህና መሰል
ጥናቶች በመሳተፍ እንዲሁም ያላቸውን ልምድና እውቀት ብሎም አመለካከት ለተመራማሪዎች
ሲያካፈሉ በትምህርቱ አለም ያለውን የእውቀት ክፍተት እየዳበረና ያለው አሰራር አዲስ ልምድ
እየወለደ ሄዶ የበለፀገ እውቀትና ክህሎት ላይ እንዲደርስ ከፍተኛውን ድርሻ እየተወጡ መሆኑን
ስናገር ለርስዎ ያለኝን አክብሮትና ምስጋና በቅድሚያ በማቅረብ ነው፡፡
የመጠይቁ አላማ
የመጠይቁ ባለቤት በህንድ አገር በቡነስዋር ከተማ በሚገኘው የKIIT ዩኒቨርሲቲ በፋይናንስ
ዘርፍ የPh.D ተማሪ ስሆን፣ የዚህ መጠይቅ አላማም የሶስተኛ ዲግሪ (Ph.D) ትምህርት
መመረቅያ የጥናት ጽሑፍ ስራ ለመስራት የሚጠቅሙ የቢዝነስ መረጃዎችን ለመሰብሰብ ነው።
የቢዘነሱ ዓለም ስኬትና ዕድገት እንዲሁም ድክመትና ውድቀት ምክንያቶቹ በውል ሊጠኑ
የሚችሉት እንደ እርስዎ ያሉ የቢዝነስ ሰዎች በሚሰጧቸው ኦረጂናል አስተያየቶች፣ ልምዶችና
መረጃዎች በመሆኑ ጥናቱ ውጤታማ እንደሚሆን ከፍተኛ ግምት አለኝ።
በመሆንም እርሰዎ በዚህ መጠይቅ የሚሰጡት እስተያየት፣ ልምድ፣ እንዲሁም የቢዝንስ መረጃ፣
ለትምህርትና ለትምህርት አላማ ብቻ የሚውል ሲሆን የዚህ ጥናትም ይሁን በዚሁ መስክ
መሰል የምርመራ ስራዎች፣ ያለ እርሰዎ በጎ ፍቃደኝነትና መተባበር ጥናቱ ምንም ሊሳካ
እንደማይቻል ተገንዝበው ውድ ግዜዎትን ከፍለው በመስጠት ይህን መጠይቅ እንዲሞሉልኝ
በድጋሚ በትህተና እጠያቃለሁ፡፡ መጠይቁ ባብዛኛው አማራጭ የውሳኔ ቁጥሮች የያዘ ሲሆን
ከእርሰዎ ልምድና አስተያየት በሚሄደው ምርጫ ላይ በማክበብ ያለዎትን ሓሳብና አስተያየት
ያስቀምጡ።
319
በድርጅቱ ላይ ያለዎት ሀላፊነት በሳጥኖቹ ላይ ምልክት ያድርጉ፡
ባለቤትም አስተዳደርም 000 ባለቤት ብቻ (የማያስተዳድር) 000 አስተዳደር ብቻ (ባለቤት
ያልሆነ) 000
ሌላ ከሆነ ይጠቀሱ
1. እባክዎትን በሰንጠረዡ የተዘረዘሩት የስኬትና የእድገት መለኪያዎችን አንብበው በያንዳንዱ ሃሳብ

ያለዎትን የመሰማማት ደረጃ ከ«ፍፁም አልሰማማም» «1» እስከ «በጣም እስማማለሁ» ማለትም 5
መርጠው ያክብቡ።
1= ፍፁም አልስማማም፡ 2= አልስማማም፡ 3= በለበት ላይ ነው፡ 4= እስማማለሁ፡ 5= በጣም
እስማማለሁ
a የድርጅታችን ስኬታማነት እያደገ ነው 5 4 3 2 1
b ከተወዳዳሪዎቻችን አንፃር የሽያጫችን እድገቱ አመርቂ ነው 5 4 3 2 1
c በድርጅታችን የሽያጭ ዕድገት ደስተኞች ነን 5 4 3 2 1
d ድርጅታች የያዘው የገበያ ድርሻ ከውድድሩ አንፃር አመርቂ ነው 5 4 3 2 1
e ከሽያጭ የሚገኘው ትርፍ አመርቂ ነው 5 4 3 2 1
e የኃብት ምደባችን የአጭር ግዜ ግብን ያማከለ ነው 5 4 3 2 1
f የወደፊት የተወዳዳሪነት አቀማችን በሚያጠናክር መሰራታዊ 5 4 3 2 1
የምርምር ስራ ላይ እናተኩራለን
g የስራችን ውጤት ቁልፍ ጠቋሚ ሁነቶች አስቀድመን 5 4 3 2 1
እንተነብያለን
h ጉልህ በሆኑ አጠቃላይ የስራ ሁነቶቻችን መደበኛ ከትትል 5 4 3 2 1
እናደርጋለን
i አስቀድመን “የቢሆንስ” ዳሰሳ ጥናት በመከወን መፈተሔ 5 4 3 2 1
እናበጃን
2. እባክዎትን በሰንጠረዡ የተዘረዘሩትን ስተራቴጂን የሚመለከቱ አረፈተ ነገሮች አንብበው በያንዳንዱ

ሃሳብ ያለዎትን የመሰማማት ደረጃ ከ«ፍፁም አልሰማማም» «1» እስከ «በጣም እስማማለሁ» ማለትም
5 መርጠው ያክብቡ።
1= ፍፁም አልስማማም፡ 2= አልስማማም፡ 3= በለበት ላይ ነው፡ 4= እስማማለሁ፡ 5= በጣም
እስማማለሁ
a የተሰማራንበት የስራ መስክ የስጋት ደረጃው ከፍ ያለ ነው 5 4 3 2 1
b ወሳኝ የድርጅታችን ጉዳዮች ስናሳልፍ ላላ ያለውን መንገድ 5 4 3 2 1
እነከተላለን
c አዳደዲስ ስራዎች (ፕሮጅቸቶች) ደረጃ በደረጃ እነዲወሰኑ ከማድረግ 5 4 3 2 1
ይልቅ በቀላሉ አፅድቀን
d አዳደዲስ ስራዎች ትርፍማነታቸው እርግጠኛ ባንሆንም ኢነቨስት 5 4 3 2 1
አድርገን ስራ እንጀምራለን
e የገበያ ድርሻችንን ከፍ ለማድረግ ትርፋችንን ቀንሰን እነሰራለን 5 4 3 2 1
320
f የገበያ ድርሻችንን ከፍ ለማድረግ ዋጋ ቀንሰን እነሸጣለን 5 4 3 2 1
g የእቃዎቻችን የሽያጭ ዋጋ ከገበያ በታች እንተመናለን 5 4 3 2 1
h የድርጅቱን የገንዘብ ፍሰት አቀም በመሰዋትም ቢሆን የገበያ 5 4 3 2 1
ድርሻችንን ከፍ ማድረግ እመርጣለን
3. እባከዎ በሚከተሉት አረፍተ ነገሮች ላይ ከፍፁም አልሰማማም ማለትም 1 እስከ በጣም እስማማለሁ
ማለትም 5 ቁጥሮች ላይ መርጠው በማክበብ የንግድ ስጋትን እና አደጋን የመጋፈጥና የማስተዳደር
እይታዎን ያመላክቱ።
1= ፍፁም አልስማማም፡ 2= አልስማማም፡ 3= ሃሳብ የለኝም 4= እስማማለሁ፡ 5= በጣም
እስማማለሁ
a ትርፍና ኪሳራው ሀምሳ ሀምሳ የሆነን ስራ መስራት እወዳለሁ 1 2 3 4 5
b ምን ያክል አስጊ ቢሆንም የንግድ ስራ ውሳኔ ከመወሰን አልቆጠበብም 1 2 3 4 5
c የኪሳራና ትርፋቸው ቀድሞ በማይገመቱ ስራዎች ላይ ለመሳተፍ 1 2 3 4 5
ዝግጁ ነኝ
d የስራየ ውጤትና ስኬት በግል ጥረቴ የተመሰረተ መሆኑን አምናለሁ 1 2 3 4 5
e በቢዝነሱ እድገትም ይሁን ውድቀት ምንም ተፅእኖ እንደሌለኝ 1 2 3 4 5
ይሰማኛል
f የቢለዝነስ ውሳኔ በግምትም ቢሆን ቢወሰድ የዕድገት ልዩነትን 1 2 3 4 5
አያመጣም
g እንግዳ ነገርን፣ አዲስ ነገርንና አዳዲስ ሰዎችን መተዋወቅ ቀላሌ ነው 1 2 3 4 5
h አስቀድሜ ብዙም በማቀድ አላምንም ምክንያቱም ጥሩና መጥፎ 1 2 3 4 5
የሚከሰተው በእድል ስለሆነ
4. በስራ ላይ የሚወስኑት ውሳኔን በተመለከተ ከሚከተሉት ሀሳቦች ጋር ያለዎትን የመስማማት ደረጃ

ከበጣም እስማማለሁ ማለትም 1 እስከ ፍፁም አልስማማም ማለትም 5 ቁጥሮች ላይ መርጠው ያክብቡ።
1= ፍፁም አልስማማም፡ 2= አልስማማም፡ 3= ሓሳብ የለኝም፡ 4= እስማማለሁ፡ 5= በጣም
እስማማለሁ
a ማናጀሩ ባብዛኛው ውሳኔዎችን ብቻው ይወስናል 5 4 3 2 1
b ሰራተኞች ራሳቸው ችለው እንዲወስኑ ተፈቅዶላቸዋል 5 4 3 2 1
c የስራ ተፈላጊ ውጤት ስራው ከመሰራቱ ቀድሞ በዕቅድ 5 4 3 2 1
ተቀምጧል
d የስራ አሰራር መመሪያውና ሂደቱ አስቀድሞ ተዘርዝሮ የተቀመጠ 5 4 3 2 1
ነው
e እያንዳንዱ ሰራተኛ የራሱ የተለየ የስራ ድርሻ አለው 5 4 3 2 1
5. ያለዎትን የኢንተርፕሪነርሺፕ እንዲሁም የገበያ ጥናት እውቀት በተመለከተ ከሚያትቱት አረፍተ ነገሮች
ጋር ያለዎትን የመስማማት ልኬት ከ«5» ማለትም እጅግ እስማማለሁ እስከ «1» ማለትም ፈፅሞ
አልስማማም ከርስዎ ልምድና ተሞክሮ ጋር ሚሄደውን ምርጫ ያክብቡ።
1= ፈፅሞ አልስማማም፡ 2= አልስማማም፡ 3= ሓሳብ የለኝም፡ 4= እስማማለሁ፡ 5= እጅግ እስማማለሁ
321
የተፎካካሪ ድርጅቶችን ትኩረት የሚስቡ ስራዎች ላይ ውሳኔያችን ፈጣን 5 4 3 2 1
a
ነው
b መፎክራችን «ጠንክሮ በመስራት ተፎካካሪን ማሸነፍ» የሚል ነው 5 4 3 2 1
ከተፎካካሪ ድርጅቶች አንፃር የበለጠ ስጋትና ጥረት የሚፈልግ ስራ 5 4 3 2 1
c
እንሰራለን
ለተፎካካሪዎች የፉክክር ስራ በፍጥነትና በጥንካሬ የአፀፋ ምላሽ 5 4 3 2 1
d
እንሰጣለን
e ለድርጅቱ ውጤታማነት ከኔ የሚፈለገው ስራ ከፍተኛ እንደሆነ ይሰማኛል 5 4 3 2 1
f አዲስ ነገር በመፍጠር ፋና ወጊ (ጀማሪ) መሆን ደስ ይለኛል 5 4 3 2 1
g የደንበኛኝ እርካታ በየግዜው በተቋም ደረጃ እንገመግማለን 5 4 3 2 1
h የደንበኞቻችን እርካታና አርኪ አገልግሎት ትኩረታችን ነው 5 4 3 2 1
i ተፎካካሪዎቻችን እንዴት እንደሚሰሩ ሁሌም እንወያይበታለን 5 4 3 2 1
የደንበኞቻችን እና የገበያውን የወደፊት ፍላጎት ቀድመን በማጥናት 5 4 3 2 1
j
እንዘጋጃለን
k አዳዲስ ደንበኞች ለመሳብ አዳዲስ ምርትና አገልግሎቶችን እንሰራለን 5 4 3 2 1
6. ለድርጅትዎና ለራስዎ ያለዎትን የእድገትና የለውጥ ዝግጁነት ለመለካት ከተዘረዘሩት ሓሳቦች ውስጥ
የርስዎ አመለካከትና ልምድ ይወክላል ብለው ባሰቡት ቁጥር ላይ ማለትም ከ«5» እጅግ እስማማለሁ
እስከ «1» ፈፅሞ አልስማማም ከወከሉት ቁጥሮች እየመረጡ ያክብቡ።
1= ፈፅሞ አልስማማም፡ 2= አልስማማም፡ 3= ሓሳብ የለኝም፡ 4= እስማማለሁ፡ 5= እጅግ እስማማለሁ
a ፈጣን እድገት ለማስመዝገብ ዝግጁና ቁርጠኛ ሆነን እየሰራን ነው 1 2 3 4 5
አሁን ባለው ውሱን ሀብት እና መዋቅር በቀላሉ በ20% ማደግ 1 2 3 4 5
b
እንችላለን
ፈጥነን ማደግ እንዳለብን በድርጅቱ ያለው ሰራተኛ በሙሉ 1 2 3 4 5
c
ያውቃል
አሁን ያለው ውጤትና ስኬት የማይናቅ ቢሆንም የበለጠ 1 2 3 4 5
d
ለማምጣት እየሰራን ነው
የኛን ውጤት ሳይሆን የሚበልጡንን ዕድገት በማየት ተግተን 1 2 3 4 5
e
እንሰራለን
f ቀድመን ያለምነው አላማ ላይ ለመድረስ ተግተን እየሰራን ነው 1 2 3 4 5
ድርጅቱ አድጎ እና ተለጥጦ ከኔ ውጭ በማናጅመንት ቁጥጥር 1 2 3 4 5
g
እንዳይሆን እሰጋለሁ
7 እባክዎትን በዚህ ሰንጠረዥ ውስጥ እርስዎ እንደ ድርጅት ባለቤት ወይም አስተዳደር ያለዎትን ክህሎት
እና ብቃት ከሚያትቱት ሓሳቦች ከበጣም እስማማለሁ ቁጥር 5 እስከ ፍጹም አልስማማም ቁጥር 1 ድረስ
ካሉት ቁጥሮች መርጠው በማክበብ የመስማማት መጠን/ደረጃውን ይግለፁ።
እስማማለሁ
a ድርጅቱን ለረዥም ጊዜ የሚያገለግሉ እስትራቴጂዎችን እነድፋለሁ 5 4 3 2 1
322
b ብዙ ግዜ በውይይት ላይ የምሰጣቸው አስተያየቶች ገንቢና ወሳኝ 5 4 3 2 1
ሆነው ይመረጣሉ
c ባህሪየ አዳዲስና ዘመናዊ ነገሮች ላይ ያተኩራል 5 4 3 2 1
d አዳዲስ አሰራሮች ፣ምርቶች እና አገልግሎቶችን ቀድሜ 5 4 3 2 1

አስተዋውቃለሁ
e ሌሎች ያልደፈሩትን አይነት ጥያቄ የመጠየቅ ልምድ አለኝ 5 4 3 2 1
f ስራዎቼ ቀድሜ ባቀድኩት መሰረት የተመሩ ናቸው 5 4 3 2 1

g ብዙ ትኩረት የምሰጠው ለድርጅቱ ወይም ለግሌ ባቀድኩት እቅድ 5 4 3 2 1
ላይ ነው
h የድርጅቱ ዝርዝር ስራዎች በወረቀት የተቀመጡ ናቸው 5 4 3 2 1
i ድርጅቱ በሚፈልገው ዕውቀትና ክህሎት ላይ የተካኑ ሰዎች አሉን 5 4 3 2 1
j በአካባቢያችን ያሉትን ዕድሎች አፈላልገን እንጠቀምባቸዋለን 5 4 3 2 1
k የድርጅቱ ፋይናንስ ፣የሰው ኃብትና ሌሎችም ኃብቶች በማቀናጀት 5 4 3 2 1

እንሰራለን
l ከተፎካካሪዎች የተሻለ/የተለየ አሰራር/ ቴክኒክ፣ መሳሪያና ቴክኖሎጂ 5 4 3 2 1
እንጠቀማለን
m ለሰራተኛ የሚመች የስራ አካባቢ በመፍጠር ችግሮችን ለመካፈል 5 4 3 2 1
ችለናል
8 ድርጅትዎ አዲስ ነገር ለገባያ በማስተዋወቅ ረገድ ያለውን ደረጃ የሚያመላክቱ ሓሳቦች በሰንጠረዡ ላይ
ተዘርዝረዋል። እባክዎትን በያንዳንዱ ሃሳቦች ላይ ያለዎትን የመስማማት ደረጃ ከአማራጭ ቁጥር 1
«ፍፁም አልስማማም» እስከ አማራጭ 5 «በጣም እስማማለሁ» አንዱን መርጠው በማክበብ
ሃሳብዎትን ያሳውቁ
1= ፍፁም አልስማማም፡ 2= አልስማማም፡ 3= ሓሳብ የለኝም፡ 4= እስማማለሁ፡ 5= በጣም እስማማለሁ
ባለፉት 3 አመታት ድርጅቱ፡-
a ዘወትር ስራችንን የሚደግፉ ጥሩ አጋጣሚዎች አፈላልገን እነይዛለን 1 2 3 4 5
b አዳዲስ ምርቶችንና ኣሰራሮችን ለገበያው በማሰተዋወቅ ቀዳሚውን 1 2 3 4 5
ስፍራ እንይዛለን
c ቢዘነሳችንን ሊያሳድግ የሚችል አጋጣሚን ፍለጋ በትጋት እነቆማለን 1 2 3 4 5
d አቀማእንን በማጠናከር ምን ግዜም ከተወዳዳሪዎቻችን ቀድመን 1 2 3 4 5
እነገኛለን
e ስራችንን የሚደግፉ ጥሩ አጋጣሚዎችን ፍለጋ በትጋት እንቆማለን 1 2 3 4 5
9. የሚከተሉት ሓሳቦች ጋር ያለዎትን የመስማማት መጠን ከትልቁ ቁጥር 5 «በጣም እስማማለሁ»

እስከ ትነሹ ቁጥር 1 «ፍፁም አልስማማም» አንዱን እየመረጡ ያክብቡ
እስማማለሁ
323
a የዋጋ ጭማሪ ደንኞቻችን ለድርጅቱ ያላቸውን መልካም እይታ 1 2 3 4 5
አይቀንሰውም
b ምርታችን /አገልግሎታችን ታዋቂነትን (Branded status) 1 2 3 4 5
አግኝቷል
c ደንበኞቻችን ከገበያው ሁሉ፡ የኛን ምርት ይመርጣሉ 1 2 3 4 5
d ሰራተኞች በድርጅቱ የጋራ አላማ ላይ ይስማማሉ 1 2 3 4 5
e ጠንካራና መልካም በጋራ የመስራት አስተሳሰብ አሳድገናል 1 2 3 4 5
f በሰራተኛ ስልጠና ላይ የሚፈስ ገንዘብ ኢንቨስትመንት እንጂ 1 2 3 4 5
ወጪ አይደለም
g መማር የለውጥ ቁልፍ እንደሆነ ድርጅታችን ያምናል 1 2 3 4 5
h ከሰራናቸው ስህተቶች ለመማር በቂ ግዜ ሰጥተን የማሻሻል ስራ 1 2 3 4 5
እንሰራለን
i የስራዎቻችንን ስኬቶች እና ድክመቶች ለይተን ለመፍትሄው 1 2 3 4 5
እንወያያለን
10. በዚህ ሰንጠረዥ የገበያ፣ የደንበኞችና አከባቢያዊ ሁኔታዎች ጋር ያለዎትን አስተያየት ለማሳየት
ከአማራጭ ቁጥር «5» «እጅግ እስማማለሁ» እስከ አማራጭ ቁጥር «1» «ፈፅሞ አልስማማም»
እየመረጡ ያክብቡ።
1= ፈፅሞ አልስማማም፡ 2= አልስማማም፡ 3= ሓሳብ የለኝም፡ 4= እስማማለሁ፡ 5= እጅግ
እስማማለሁ
a ገበያው ገና ያልተሰራበት እድሎች አሉት 5 4 3 2 1
b ባለንበት የስራመስክ ትርፋማነት እና ዕድገት ዕድሉ ሰፊ ነው 5 4 3 2 1
c የድርጅቱ ዋና ገበያ ዕድገቱ ፈጣን ነው 5 4 3 2 1
d ደንበኞች ሁሌም አዲስ ነገር ይፈልጋሉ 5 4 3 2 1
e ባለንበት የስራ መስክ የምርትና አገልግሎት ተፈላጊነት 5 4 3 2 1
በፍጥነት ይቀያየራል
f ገበያ ለመቆየት በየጊዜው ከአዲስ ቴክኖሎጂ ጋር መተዋወቅ 5 4 3 2 1
ይጠይቃል
g ያለንበት መስክ ብዙም የቴክኖሎጂ ለውጥና አይጠይቅም 5 4 3 2 1
h የደንበኞችን ፍላጎት እና ምርጫ በየወቅቱ መገመት አዳጋች 5 4 3 2 1
ነው
i የገበያ ድርሻችን ባለው ከፍተኛ ፉክክር ምክንያት ስጋት ላይ 5 4 3 2 1
ነው
j የደንበኞች የመግዛት ባህሪ በጣም የተለያየ ነው 5 4 3 2 1
k ከተፎካካሪዎቻችን አንፃር የተሻለ የመወዳደር ብቃት አለን 5 4 3 2 1
l ያለንበት ገበያ በጠንካራ ፉክክር የተምላ ነው 5 4 3 2 1
11. በደንበኞችዎ እና በአቅራቢዎችዎ ላይ ያለዎት መተማመን እንዴት ይለኩታል? ከአማራጭ ቁጥር

«5» «እጅግ እስማማለሁ» እስከ አማራጭ ቁጥር «1» «ፈፅሞ አልስማማም» እየመረጡ ያክብቡ።

እስማማለሁ
a ከደንበኞቻችን ጋር ለረዥም አበሮ የመስራት ፍላጎት አለን 1 2 3 4 5
b አገልገሎታችን ደንበኛ ተኮር አድርገነዋል 1 2 3 4 5
324
c ደንበኞቻችንን የድርጅቱን ዓላማ፣ እሴት እና ልምድ እንዲያውቁ 1 2 3 4 5
እናደርጋለን
d ደንበኞቻችን በድርጅቱ አግገሎት ያላቸው መተማመን 1 2 3 4 5
የመገንባት አቋም አለን።
e ድርጅታችን ባለቤቶች ቤተሰብ ነክ ናቸው 1 2 3 4 5
f ወሳኝ የድርጅቱ ውሳኔዎች የሚተላለፉት በቤተሰቡ አባላት ነው 1 2 3 4 5
g የድርጅቱ አስተዳደር የሚመራው በቤተሰብ አባላት ነው 1 2 3 4 5
h ባጠቃል ድርጅታችን የቤተሰብ ድርጅት ነው ማለት ይቻላል 1 2 3 4 5
12. እባክዎትን በሚከተሉት ማህበራዌ እና የንግድ ግንኙነት የሚመለከቱ ሓሳቦች ላይ ያለዎትን

የመስማማት መጠን ከ«5» «እጅግ እስማማለሁ » እስከ «1» «ፈፅሞ አልስማማም» መርጠው
ያክብቡ።
እስማማለሁ
a በዙርያችን ካሉ ተመሳሳይ ድርጅቶች እና ኢንዱስትሪ ጋር መልካም 5 4 3 2 1
ትብብር አለን
b ባቅራቢያችን ካሉ ተጓዳኝ ቢዝነሶች ጋር በጋራ ስራዎችን እንሰራለን 5 4 3 2 1
c ማሽነሪ /የንግድ ቦታና ህንፃ /ወይም ግብአት ከተጓዳኝ፤ከዘመድ 5 4 3 2 1
ወያም ከአከባቢው ቢዝነሶች ጋር እንዋዋሳለን
d ከደንበኛ ጋር የረጅም ግዜ የንግድ ግንኙነትና ስምምነት እናደርጋለን 5 4 3 2 1
e ከአቅራቢ ጋር ደጋግሞ በመግዛት የረጅም ግዜ ግንኙነት ፈጥረናል 5 4 3 2 1
f ቢዝነሱ ከሽያጩ ብዙ የሚባል ገንዘብ፡ ዝምድናን እና ማህበራዊ 5 4 3 2 1
ግንኙነትን ለመደጎም ወጪ ያዳረጋል
g ማህበራዊ ግንኙነትና ዝምድና ላይ የሚጠፋ ገንዘብ ለመቆጠብ 5 4 3 2 1
ሲባል፡ ቢዝነሱ ዘመድ አዝማድ ካሉበት ቦታ ራቅ ብሎ ይሰራል
h ድርጅቱ የንግድ ማህበረሰብ ወይም የሌላ ሞያና የንግድ ማሀበራት 5 4 3 2 1
አባል ነው
i አስፈላጊ የሆኑ የቢዝነስ ትስስሮችና አድራሻዎች አሉን 5 4 3 2 1
j ቢዝነሱን የሚደግፉ ብዙ ጓደኞች /ዘመዶች ወያም የቤተሰብ አባላት 5 4 3 2 1
አሉን
13. ባለዎት የቢዝነስ ስራ ልምድ መሰረት ያለዎትን የመስማማት ደረጃ ከአማራጭ ቁጥር 1
«ፍፁም አልስማማም» እስከ አማራጭ 5 «በጣም እስማማለሁ» አንዱን መርጠው በማክበብ
ሃሳብዎትን ያሳውቁ
እስማማለሁ
a የመንግስት ስራ ኃላፊዎች/ ባለሙያዎች/ ለቅልጥፍና ሲባል የሻይ ማለት 1 2 3 4 5
የግድ ነው።
b ስራን ለማስፈፀም ተገቢ ያልሆነ ክፍያ የሚጠይቅ ባለሙያ ሲያጋጥመን 1 2 3 4 5
እንከሳለን
325
c ህጋዊው ስራን የማስፈፀም ሂደቱ የተጓተተ ከሆነ፡ በሰው ወይም በገንዘብ 1 2 3 4 5
ከማስፈፀም ሌላ አማራጭ የለም
d ጉቦ ሳይከፍሉ ወይም ዝምድና ሳይፈጥሩ ስራ መስራት በጭራሽ 1 2 3 4 5
የሚቻል ነገር አይደለም
14. እባክዎ በሰንጠረዡ በተዘረዘሩት አገልግሎቶች የእርካታዎን ደረጃ ከ ቁጥር 5 «እጅግ ደስተኛ ነኝ»
እስከ ቁጥር 1 «ፍፁም ደስተኛ አይደለሁም» ከወከሉት አምስት አማራጮች አንዱን በማክበብ
የእርካታዎን ልኬት ያሳዩ።
1= ፍፁም ደስተኛ አይደለሁም 2= ደስተኛ አይደለሁም 3= ሓሳብ የለኝም፡ 4= ደስተኛ ነኝ 5= እጅግ
ደስተኛ ነኝ
a የማዘጋጃቤት አገልግሎት 5 4 3 2 1 g የንግድ ቻምበር 5 4 3 2 1
b የጥራትና ደረጃ መዳቢ 5 4 3 2 1 ፍርድ ቤት ወይም ፍትሕ 5 4 3 2 1
h
ጽ/ቤት
c ንግድና ትራንስፖረት 5 4 3 2 1 i ታክስና ግብር መክፈያ 5 4 3 2 1
d የጉምሩክ፣ቀረጥና 5 4 3 2 1 የኤሌክትሪክ ሰርቪስ 5 4 3 2 1
j
ክሊራንስ አገልግሎት
e የውሃ አገልግሎት 5 4 3 2 1 የባለቤትነት ዝውውር 5 4 3 2 1
k
አገልግሎት
f የጥበቃ፣ ፖሊስና 5 4 3 2 1 የስልክ/እንቴርኔት/ቴሌኮም 5 4 3 2 1
l
ደህንነት አገልግሎት አገልግሎት
15. የሚከተሉት መመርያዎች ከልመድዎ በመነሳት ቀላልነት እና ከባድነት ከ«በጣም ከባድ» አማራጭ 5
እስከ «በጣም ቀላል» አማራጭ 1 አንዱን በመምረጥ በመመርያዎቹ ያለዎትን አስተያየት ይገለፁ።
15. የሚከተሉት መመርያዎች ከልመድዎ በመነሳት ቀላልነት እና ከባድነት ከ«በጣም ከባድ» አማራጭ 5
እስከ «በጣም ቀላል» አማራጭ 1 አንዱን በመምረጥ በመመርያዎቹ ያዎትን አስተያየት ይገለፁ።
1= በጣም ቀላል፡ 2= ቀላል 3= መካከለኛ፡ 4= ከባድ 5= በጣም ከባድ
a የስራ ፈቃድ አወጣጥና ዕድሳት መመርያ 5 4 3 2 1
b የውጭ ንግድ መመርያ (ኢምፓርትና ኤክሰፓርት ሂደት) 5 4 3 2 1
c ሠራተኛን የሚመለከቱ መመርያዎች 5 4 3 2 1
d የጤና እንዲሁም የሰራተኛ ደሕንነት መመርያዎች 5 4 3 2 1
e የግብር ወይም የታክስ ሂደት፣ አስራርና መመርያ 5 4 3 2 1
f የአካባቢ ጥበቃ መመርያ 5 4 3 2 1
g የውጭ ምንዛሬ ጥያቄ የሚመለከት መመርያ 5 4 3 2 1
16. እበክዎ በህገ ወጥ መንገድ የተወሰደ፣ የተዘረፈ፣ የተጭበረበረ ወይም ወንጀልን አዎ የለም
ለመከላከል የወጣ ወጪ፡ ሃብትና ንብረት ካለ መስማማት አለ መስማማትዎን
በተሰጠው ክፍት ቦታ የX ምልክተ ድያሰቀምጡ
a የቢዝነሱ ስራተኞች ማጭበርበርና ስርቆት ምክንያት ድርጅቱ ላይ ኪሳራ ያደርሳሉ
326
ህገወጥነትን እና ዘረፋን ለመከላከል ለጥበቃ/ለፖሊስ/ ጠቀም ያለ ወጪ
b
እናወጣለን።
በስረቆት፣ በዘረፋ፣በመጭበርበር ምክንያት የድርጅቱ ንብረት ወይም ገንዘብ
c
ይሰረቅብናል።
17. እባክዎትን የሚከተሉት ደምበኞች የደመበኝነት ደረጃ ከድርጅትዎ አንዱን መርጠው

በሚገዙት ግዢ መጠንና ብዛት መሰረት ዋነኛ የምትሉትን አንዱን ምረጡ ያከብቡ
a የአንድ ግዜ ደንበኛ (ያልተመዘገበ፣ መንገደኛ ገዢ) walk in customer 1
b የረዥም ግዜ ደንበኞች (ቋሚ ደምበኛ) 2
c መንግስታዊ ድርጅቶች 3
d የተለዩ ናቸው 4
18. የሚከተሉት መሰናክሎች ወይም ችግሮች ለቢዝነስዎ ዕድገት ችግር ፈጥረው ከሆነ የመሰናክልነት ደረጃን
ወክለው ከተቀመጡት ቁጥሮች እየመረጡ ከያንዳነዱ መሰናክል ፊትለፊት በተሰጠው ክፍት ሳጥን
ወኪል ቁጥሩን ይፃፉ።
መሰናክሎቹ፡-
5= በጣም ከባድ 4= ከባድ 3= መካከለኛ 2= ቀላል 1= በጣም ቀላል
አዲስ ገበያ ማፈላለግና ማግኘት ከቴክኖሎጂ ፍጥነት ጋር አብሮ
a o
መጓዝ አለመቻል
አጠቃላይ የገባያ ፍላጎት ማነስ ባነኮች ለብድር ከፍተኛ የንብረት ዋስትና
b p
መጠየቅ
የውጭ ገበያ (export access) ማጣት የፋይናንስ ምንጭ አገናኝ ጋር
c q
አለመተዋወቅ
d የጥሬ ገንዘብ (cash flow) ፍስት እጥረት r የምርትና ሽያጭ ቦታ አለማግኘት
የብድር ወለድ ከፍተኛ መሆን ግብአትና አቅርቦት አለመኖር ወይም
e s
መዘግየት
ባለቤቱ (ማናጀሩ) በቢዝነሱ የቀን ተቀን የመመርያ፣አሰራር፣ የህግና ደንቦች ቆይታ
f t
ስራ መወጠር አለመረጋጋት
g ወለድ አልባ ብድር አለመኖር u የኮንትሮባንድ ስራ መስፋፋት
ፍቃድ ከሌላቸው ነጋዴዎች ጋር የዕውቀት የክህሎትና የቴክኖሎጂ እጥረት
h v
መወዳደር
VAT (ቫት) ካልተመዘገቡ ነጋዴዎች ጋር ከፍተኛ የሞያ ብቃት ያለው የሰው ኃብት
i w
ተመሳሳይ አይነት የንግድ ስራ መስራት ማግኘትና ማቆየት አለመቻል
ጠንካራ የአካውንቲንግ (የሂሳብ ስራ) የመንግስት አሰራሮች የሚጠይቁት የስራ
j ደረጃዎች እና የቁጥጥር ስርዓት x ሂደት ለማሟላት የሚጠፋ ግዜ
አለመኖር
327
የዎጋ አለመራጋጋትና (የዋጋ ንረት) የሚያሰራ የድርጅት መዋቅር መቅረፅ
k y
አለመቻል
የብር በቀጣይነት መጋሸብ (የዶላር የፖለቲካ አለመረጋጋት ስጋት
l z
መወደድ)
የምንዛሬ እጥርት a በስራ ሓለፊዎች ያልተገባ ክፍያ (ሙስና)
m
a መጠየቅ
n ከፍተኛ የግብር ጫና
a የመንግስ ድጋፍ ማነስ ወይ አለ መኖር
b
19. እባክዎ የድርጅቱ ሃብት ከሚከተሉት ምንጮች መጠቀም አለ የለም

አለመጠቀሙን በሚመለከት የእርማት ምልከቷን በማማረጫው ሳጥኑ
በማስቀመጥ ያሳዩ
a ከባንኮች ወይም ከአነስተኛ ብድርና ቁጠባ ተቋማት በብድር የተገኘ
b ሌሎች አበዳሪዎች ከቤተሰብ ፤ከጓደኞች ፤ከዘመድ አዝማድ
20. እባክዎ በሚከተለው ሰንጠረዥ ለተጠየቁት የቁጥር ጥያቄዎች ተገቢውን መጠን አለ የለም
በተሰጠው ክፍት ቦታ ያስቀምጡ
a በአገር ውስጥ፡ በድርጅቱ ወይም በድርጅቱ ባለቤት የሚመሩ ሌላ ቢዝነሶች አለ/ሉ
b በውጭ ሀገር፡ የድርጀቱ ባለቤት ንብረት የሆኑ እህት ድርጅቶች አለ/ሉ
ድርጅቱን የሚያግዙ ግለሰቦች፣ ወይም የዘመድ፤ የጓደኛ ቢዝነሶች ካሉ ብዛት

c
ቢገልፁልን
በድርጅትዎ የገንዘብ ወይም የንብረት ድጋፍና እገዛ የተከፈቱ የዘመድ ፤የጓደኛ ወዘተ
d
ቢዝነሶች አሉ።
21. ድርጅቱ ከተዝረዝሩት መዋቅሮች ውስጥ አንዱን የሚከተል ከሆነ በሚከተለው መዋቅር ፊትለፊት ባለው
ሳጥን ላይ ቲክ (ራይት ምልክት) ያድርጉ
የስልጣን ተዋረድ የጠበቀ መዎቅር የሥራ ድርሻን ያማከለ መዋቅር (Function
a
(Hierarchy Structure ) Structure)
b ስራ ሂደትን ያማከለ መዋቅር (Division ቀጥተኛ መዋቅር (Direct Structure)

Structure)
c ሌላ ከሆነ (ይገለፅ)
23. የድርጂቱ ባለቤት ዕድሜ

24. ፃታ: ወንድ ዐዐዐ ሴት ዐዐዐ
25. የትምህርት ደርጃ፡
26. ይህን ቢዝንስ ከመጀመርዎ በፊት የስራ ልምድ ከነበረዎት በዓመት ይግለፁ
328
27. የቀድሞ የስራ ልምድዎ ከአሁኑ ስራ ጋር ተቀራራቢ ነውን?
አዎ ዐዐዐ አይደለም ዐዐዐ
28. ከወላጆችዎ አንዳቻውም ቢሆኑ የቢዝንስ ልምድ አላቸውን?
አዎ ዐዐዐ የላቸውም ዐዐዐ
29. የወላጅ ወይም አሳዳጊ አባትዎ የትምህርት ደረጃ
30. የወላጅ ወይም አሰዳጊ እናት የትመህርት ደረጃ
31. የድርጅቱ ህጋዊ አደረጃጀት፡

የሽርክና (share company) ዐዐዐ ኃ.የ.የግ.ኩባንያ ዐዐዐ የህብረት ስራ ማህበር ዐዐዐ
የግል ድርጅት ዐዐዐ
ሌላ ከሆነ ይጥቀሱ፡
ድርጅቱ የተሰማራበት መስከ፡ ማምረቻ ዐዐዐ ንግድ ዐዐዐ

33 . ድርጀትዎ የተስማራበት ገበያ ሁኔታ አንዴት ይገልፁታ?
አዲስና ያለደገ ዐዐዐ እያደገ ያለ ዐዐዐ ያደገ ገበያ ዐዐዐ
እየወረደ ያለ ዐዐዐ
34. ድርጅትዎ በብዛት የሚያመርተው ምርት ወይም የሚሰጠው አግልግሎት ይጥቀሱ፡
35. ድርጅትዎ የተሰማራበት እንደስትሪ ይጥቀሱ፡
36. ቢዝነሱ በዋናነት የሚገኝበት ቦታ የት ነው
37. የቢዝንሱ ባለቤት/ቶች ላይ ምልክት ያድርጉ፡-

ሙሉ የቤተሰብ ዐዐዐ ከፊሉ የቤተሰብ ዐዐዐ የግል ዐዐዐ
38. ድርጅትዎ ሌላ ድርጅትን ገዝቶ አዲስ ድርጅት መስርቷል?
አዎ ዐዐዐ አይደለም ዐዐዐ
39. ድርጅትዎ የተመሰረተበት ዓመት
40 በ2018 ያሉት ስራተኞች ብዛት
41 በ2015 የነበሩት የስራተኞች ብዛት
42. ሲመሰረት በስንት ሰራተኛ ተመሰረት
43 ሲመሰረት በስንት ካፒታል ተመሰረት?
44. በ2015 የድርጅቱ ካፒታ ስንተ ነበረ?
329
45 አሁን ያለው ካቲታል ስንት ደርሷል?
46 በ2017 የነበረው የሽያጭ መጠን ምን ያክል ነበር?
47. በ2015 የድርጅቱ ሸያጭ ምን ያክል ነበረ?
48 በ2017 የነበረው ትርፍ መጠን ምን ያክል ነበር?
49. በ2015 የድርጅቱ ትርፍ መጠን ምን ያክል ነበር?
50. እባክዎትን በቢዝነስ እድገት ዙርያ ሊጨምሩት የሚፈልጉት ጉዳይ ካላ በፅሑፍም በቃልም
ለመቀበል ዝግጁ ነኝ
ይህንን መጠይቅ ለመሙላት ውድ ግዜዎትን ስላበረከቱልኝ እጅግ በጣም አድርጌ ላመሰግነዎት

እወዳለሁ።
330
Appendixes 2.2: Descriptive Result of Business Barriers and Some Test
The result of the descriptive statistics on the challenges of manufacturing and
merchandising business of the study as shown in (appendix 2.2 A, B, and C) have been
processed in SPSS separately and compiled in an excel sheet to show a complete view of
all the challenge related variables of the study. The ordinary regression was conducted
forming new data from these results.
Appendix 2.2 A: Challenges as Rated by Merchandising Sector (Frequency and
Percentage of Scale)
exert moderate challenge; 4=Sev_C, Severe challenge; and 5=V.Sev_C, a very severe
challenge
Frequency and Percentage of Scale

Frequency and Percentage of Scale (N=536)
Not_C Min_C Mod_C Sev_C V.Sev_C

1 2 3 4 5
Coun Rate1 Count Rate2 Count Rate3 Coun Rate Rate5 Medi
Challenge t1 % 2 % 3 % t4 4 % Count5 % an
Market18a 171 32 115 21 98 18 105 20 47 9 2
Market18b 152 28 120 22 105 20 120 22 39 7 2
Market18c 156 29 122 23 85 16 132 25 41 8 2
Financial18d 153 29 97 18 94 18 134 25 58 11 3
Financial18e 133 25 88 16 97 18 140 26 78 15 3
Financial18g 162 30 94 18 91 17 134 25 55 10 3
Financial18p 156 29 92 17 83 15 139 26 66 12 3
Financial18q 147 27 103 19 88 16 134 25 64 12 3
Economic18k 163 30 86 16 83 15 133 25 71 13 3
Economic18l 149 28 84 16 79 15 135 25 89 17 3
Economic18m 156 29 87 16 79 15 115 21 99 18 3
CompInformal18h 189 35.3 191 35.6 69 12.9 56 10.4 31 5.8 2
CompInformal18i 187 35 180 34 70 13 56 10 43 8 2
Management18f 161 30 122 23 93 17 125 23 35 7 2
331
Management18j 169 32 109 20 105 20 113 21 40 7 2
Management18y 172 32 108 20 115 21 95 18 46 9 2
Technology18o 158 29 179 33 83 15 70 13 46 9 2
Technology18t 180 34 164 31 85 16 77 14 30 6 2
TaxRate18n 241 45 134 25 57 11 64 12 40 7 2
Location18r 217 40 128 24 70 13 62 12 59 11 2
Supply18s 197 37 130 24 106 20 62 12 41 8 2
Information18u 158 29 111 21 84 16 83 15 100 19 2
Policy_Insta18v 175 33 179 33 81 15 62 12 39 7 2
Qual_Personnel18w 152 28 115 21 106 20 89 17 74 14 3
Regulation_Comp1 138 92 88 152 66 3
8x 26 17 16 28 12
Political_Insta18z 149 28 198 37 87 16 61 11 41 8 2
Corruption18aa 166 31 123 23 76 14 105 20 66 12 2
LGov_Support18ab 148 28 94 18 81 15 148 28 65 12 3
Appendix 2.2 B: Challenges as Rated by Manufacturing Sector
challenge

1 2 3 4 5
Count Rate1 Rate2 Count Rate3 Coun Rate4 Count Rate5 Media
Challenge 1 % Count2 % 3 % t4 % 5 % n
Market18a 148 29 103 21 99 20 94 19 58 12 2.5
Market18b 163 32 98 20 107 21 91 18 43 9 2.0
Market18c 149 30 126 25 94 19 95 19 38 8 2.0
Financial18d 146 29 95 19 80 16 124 25 57 11 3.0
Financial18e 154 31 70 14 83 17 131 26 64 13 3.0
Financial18g 162 32 83 17 88 18 101 20 68 14 3.0
Financial18p 156 31 85 17 87 17 117 23 57 11 3.0
Financial18q 129 26 94 19 101 20 113 23 65 13 3.0
Economic18k 131 26 99 20 73 15 131 26 68 14 3.0
Economic18l 132 26 95 19 84 17 103 21 88 18 3.0
Economic18m 151 30 88 18 71 14 117 23 75 15 3.0
CompInformal18h 184 37 149 30 84 17 46 9 39 8 2.0
CompInformal18i 173 34 161 32 74 15 53 11 41 8 2.0
Management18f 162 32 107 21 79 16 107 21 47 9 2.0
332
Management18j 161 32 110 22 99 20 86 17 46 9 2.0
Management18y 166 33 117 23 96 19 84 17 39 8 2.0
Technology18o 167 33 145 29 86 17 57 11 47 9 2.0
Technology18t 173 34 149 30 79 16 64 13 37 7 2.0
TaxRate18n 202 40 114 23 79 16 63 13 44 9 2.0
Location18r 208 41 111 22 59 12 68 14 56 11 2.0
Supply18s 201 40 133 26 75 15 55 11 38 8 2.0
Information18u 161 32 101 20 86 17 60 12 94 19 2.0
Policy_Insta18v 195 39 145 29 62 12 50 10 50 10 2.0
Qual_Personnel18 181 36 99 20 81 16 60 12 81 16 2.0
w
Regulation_Comp 155 31 96 19 84 17 111 22 56 11 2.5
18x
Political_Insta18z 155 31 164 33 78 16 69 14 36 7 2.0
Corruption18aa 147 29 116 23 77 15 116 23 46 9 2.0
LGov_Support18a 139 28 104 21 80 16 123 25 56 11 3.0
b
Appendix 2.2 C: Combined Result of Both Sectors (Pooled)
challenge

1 2 3 4 5
Count Rate1 Count Rate2 Count Rate3 Count Rate4 Count Rate5 Media
Challenge 1 % 2 % 3 % 4 % 5 % n
Market18a 319 31 218 21 197 19 199 19 105 10 2
Market18b 315 30 218 21 212 20 211 20 82 8 2
Market18c 305 29 248 24 179 17 227 22 79 8 2
Financial18d 299 29 192 18 174 17 258 25 115 11 3
Financial18e 287 28 158 15 180 17 271 26 142 14 3
Financial18g 324 31 177 17 179 17 235 23 123 12 3
Financial18p 312 30 177 17 170 16 256 25 123 12 3
Financial18q 276 27 197 19 189 18 247 24 129 12 3
Economic18k 294 28 185 18 156 15 264 25 139 13 3
Economic18l 281 27 179 17 163 16 238 23 177 17 3
Economic18m 307 30 175 17 150 14 232 22 174 17 3
CompInformal18h 373 36 340 33 153 15 102 10 70 7 2
CompInformal18i 360 35 341 33 144 14 109 11 84 8 2
Management18f 323 31 229 22 172 17 232 22 82 8 2
333
Management18j 330 32 219 21 204 20 199 19 86 8 2
Management18y 338 33 225 22 211 20 179 17 85 8 2
Technology18o 325 31 324 31 169 16 127 12 93 9 2
Technology18t 353 34 313 30 164 16 141 14 67 6 2
TaxRate18n 443 43 248 24 136 13 127 12 84 8 2
Location18r 425 41 239 23 129 12 130 13 115 11 2
Supply18s 398 38 263 25 181 17 117 11 79 8 2
Information18u 319 31 212 20 170 16 143 14 194 19 2
Policy_Insta18v 370 36 324 31 143 14 112 11 89 9 2
Qual_Personnel18w 333 32 214 21 187 18 149 14 155 15 2
Regulation_Comp18 293 28 188 18 172 17 263 25 122 12
x 3
Political_Insta18z 304 29 362 35 165 16 130 13 77 7 2
Corruption18aa 313 30 239 23 153 15 221 21 112 11 2
LGov_Support18ab 287 28 198 19 161 16 271 26 121 12 3
Appendix 2.2 D: Assumptions and Model Tests for the Ordinary Regression
Merchandising sector Overall test (omnibus test of statistical significance)

Model Fitting Information (Merchandising)
Model -2 Log Likelihood Chi-Square df Sig.
Intercept Only 1525.772
Final 1139.802 385.971 27 .000
Goodness-of-Fit (Merchandising)
Chi-Square df Sig.
Pearson 480.593 81 .000
Deviance 468.607 81 .000
Test Results (Merchandising)

Wald df Sig.
383.409 27 .000
Test of Parallel Linesa

-2 Log
Model Likelihood Chi-Square df Sig.
Null Hypothesis 1139.802
334
General 671.195 468.607 81 .000
The null hypothesis states that the location parameters (slope
coefficients) are the same across response categories.
a. Link function: Logit.
Manufacturing sector Overall test (omnibus test of statistical significance)
Model Fitting Information

-2 Log
Final 1004.159 274.147 27 .000
Goodness-of-Fit
Chi-Square df Sig.
Pearson 343.250 81 .000
Deviance 339.401 81 .000
Test Results
Wald df Sig.
272.372 27 .000

-2 Log
General 664.758 339.401 81 .000
The null hypothesis states that the location parameters (slope
coefficients) are the same across response categories.
Both sectors Overall test (omnibus test of statistical significance)
Model Fitting Information

-2 Log
Final 1473.840 634.535 27 .000
335
The chi-square statistic of 634.535 at a 27 degree of freedom shows a significant model
fitting of conducting an ordinary regression using these data sets
Goodness-of-Fit
Chi-Square df Sig.
Pearson 742.744 81 .000
Deviance 727.968 81 .000
Test Results
Wald df Sig.
630.869 27 .000
Model -2 Log Likelihood Chi-Square df Sig.

General 745.872 727.968 81 .000
The null hypothesis states that the location parameters (slope coefficients) are the same
across response categories.
Multicollinearity Test of the Combined Data (Merchandising and Manufacturing)
This Table demonstrates the test of multicollinearity for the 27 challenge variables
included in the ordinary regression in part three of the analysis part. The VIF was used to
check the multicollinearity issue in the model.
Coefficientsa
Stand
ardiz
Unstandardiz ed
ed Coeffi Collinearity
Coefficients cients Statistics
Std.
Erro Tolera
Model B r Beta t Sig. nce VIF
1 (Constant) 2.471 0.030 82.643 0.000
336
Mkt_Acces18a 0.098 0.052 0.013 1.897 0.058 0.691 1.446
Mkt_Demand18b 0.073 0.052 0.010 1.414 0.157 0.691 1.446
Expor_Acces18c 0.073 0.052 0.010 1.414 0.157 0.691 1.446
Cash_Flow18d 0.238 0.052 0.032 4.595 0.000 0.691 1.446
Intrest_Rate18e 0.358 0.052 0.048 6.920 0.000 0.691 1.446
Non_InterBank18g 0.197 0.052 0.027 3.813 0.000 0.691 1.446
High_Collateral18p 0.241 0.052 0.032 4.650 0.000 0.691 1.446
LesExpe_F.Intr18q 0.294 0.052 0.040 5.674 0.000 0.691 1.446
Price_Volatility18k 0.306 0.052 0.041 5.915 0.000 0.691 1.446
Develuation18l 0.385 0.052 0.052 7.441 0.000 0.691 1.446
Shortage_FX18m 0.328 0.052 0.044 6.325 0.000 0.691 1.446
Informal_Comp18h -0.284 0.052 -0.038 -5.488 0.000 0.691 1.446
Comp_NonVAT18i -0.226 0.052 -0.031 -4.371 0.000 0.691 1.446
Entrep_Overload18f 0.067 0.052 0.009 1.302 0.193 0.691 1.446
Poor_Accouting18j 0.039 0.052 0.005 0.763 0.446 0.691 1.446
Org_Structure18y -0.003 0.052 0.000 -0.056 0.955 0.691 1.446
Keep_Tech18o -0.108 0.052 -0.015 -2.083 0.037 0.691 1.446
Get_Tech18t -0.188 0.052 -0.025 -3.627 0.000 0.691 1.446
Tax_Rate18n -0.173 0.052 -0.023 -3.348 0.001 0.691 1.446
Inv_Supply18s -0.226 0.052 -0.031 -4.371 0.000 0.691 1.446
Contraband18u 0.222 0.052 0.030 4.278 0.000 0.691 1.446
Policy_Instablilty18v -0.217 0.052 -0.029 -4.185 0.000 0.691 1.446
Keep_Q_Personnel18w 0.123 0.052 0.017 2.381 0.017 0.691 1.446
Regu_Complexi18x 0.272 0.052 0.037 5.246 0.000 0.691 1.446
Plotical_Instability18z -0.132 0.052 -0.018 -2.548 0.011 0.691 1.446
Informal_Pay18aa 0.124 0.052 0.017 2.400 0.016 0.691 1.446
a. Dependent Variable: Rate
Appendixes 3: Construct Retaining Procedure Comparing Result of

EFA and Parallel Analysis
This table is a combination of eigenvalues of PA and EFA calculated in Monte-Carlo
simulation and principal component analysis SPSS respectively. Columns A, D, and G
have been calculated in the online Monte-Carlo simulation or Parallel Analysis, whereas
B and C for manufacturing, E and F for merchandising, and H and I for the combined
data have resulted from the EFA of principal component analysis in SPSS 25
337
Manufacturing Merchandising Combined Data
Cumulative
Cumulative
Cumulative
Eigenvalue
Eigenvalue
Eigenvalue
Total Extraction Sums of

Squared (EFA)
Squared (EFA)
Squared (EFA)
Component
Eigenvalue
Eigenvalue
Eigenvalue
Percentile
Percentile
Percentile
%(EFA)
%(EFA)
%(EFA)
(PA)
(PA)
(PA)
A B C D E F G H I
1 2.27 17.75 14.2 2.25 16.68 13.35 1.82 15.07 12.06
2 2.17 7.14 19.91 2.14 7.22 19.12 1.77 6.81 17.51
3 2.1 5.74 24.5 2.08 6.15 24.04 1.73 5.42 21.84
4 2.06 5.12 28.59 2.04 4.83 27.9 1.7 4.69 25.59
5 2.02 3.95 31.75 1.98 4.22 31.28 1.67 4.54 29.22
6 1.98 3.87 34.85 1.95 4.17 34.61 1.65 3.98 32.41
7 1.95 3.58 37.72 1.92 3.92 37.75 1.63 3.71 35.38
8 1.92 3.31 40.37 1.88 3.4 40.47 1.61 3.42 38.11
9 1.88 3.05 42.8 1.85 3.19 43.02 1.59 3.05 40.55
10 1.85 2.9 45.13 1.82 2.9 45.34 1.57 2.99 42.94
11 1.82 2.72 47.3 1.8 2.87 47.63 1.56 2.81 45.19
12 1.79 2.65 49.42 1.77 2.56 49.68 1.54 2.72 47.36
13 1.77 2.5 51.42 1.75 2.48 51.66 1.52 2.58 49.43
14 1.74 2.48 53.4 1.73 2.42 53.6 1.51 2.43 51.37
15 1.72 2.21 55.17 1.7 2.35 55.48 1.49 2.32 53.23
16 1.7 2.14 56.88 1.67 2.14 57.2 1.47 2.16 54.96
17 1.67 2.08 58.54 1.65 1.93 58.75 1.46 2.03 56.58
18 1.66 1.99 60.13 1.63 1.85 60.23 1.45 1.95 58.14
19 1.63 1.8 61.57 1.61 1.77 61.64 1.43 1.88 59.65
20 1.61 1.69 62.93 1.6 1.66 62.97 1.42 1.73 61.03
21 1.59 1.56 64.18 1.57 1.63 64.28 1.4 1.61 62.31
22 1.57 1.51 65.38 1.55 1.51 65.49 1.39 1.51 63.52
23 1.54 1.44 66.53 1.53 1.34 66.56 1.38 1.47 64.7
24 1.52 1.37 67.63 1.51 1.28 67.58 1.37 1.33 65.76
25 1.51 1.33 68.69 1.49 1.24 68.58 1.36 1.21 66.73
26 1.49 1.24 69.68 1.47 1.23 69.56 1.34 1.13 67.64
27 1.47 1.23 70.66 1.45 1.16 70.49 1.33 1.12 68.54
28 1.45 1.17 71.6 1.43 1.12 71.39 1.32 1.03 69.36
338
29 1.43 1.13 72.51 1.42 1.07 72.24 1.31 1.02 70.17
30 1.41 1.1 73.38 1.4 1.02 73.06 1.29 1.01 70.98
31 1.39 1.02 74.2 1.38 .99 73.85 1.28 .95 71.74
32 1.38 .95 74.96 1.37 .94 74.6 1.27 .92 72.47
33 1.36 .91 75.69 1.35 .91 75.33 1.26 .85 73.15
34 1.34 .88 76.39 1.33 .89 76.04 1.25 .84 73.82
35 1.33 .87 77.09 1.31 .86 76.73 1.24 .8 74.46
36 1.31 .85 77.77 1.3 .84 77.4 1.23 .79 75.09
37 1.3 .82 78.43 1.28 .79 78.04 1.21 .76 75.7
38 1.28 .78 79.05 1.27 .77 78.65 1.21 .74 76.29
39 1.27 .77 79.66 1.26 .73 79.24 1.2 .72 76.87
40 1.25 .75 80.27 1.24 .72 79.82 1.18 .69 77.43
41 1.23 .73 80.85 1.22 .7 80.38 1.17 .68 77.97
42 1.22 .72 81.42 1.21 .68 80.93 1.16 .67 78.51
43 1.2 .68 81.96 1.2 .66 81.45 1.15 .67 79.04
44 1.18 .67 82.5 1.19 .65 81.97 1.14 .65 79.56
45 1.17 .65 83.02 1.17 .63 82.47 1.14 .64 80.07
46 1.15 .63 83.52 1.15 .61 82.96 1.13 .62 80.57
47 1.14 .63 84.02 1.14 .6 83.43 1.11 .61 81.06
48 1.13 .61 84.51 1.13 .58 83.9 1.11 .6 81.54
49 1.11 .59 84.98 1.11 .57 84.35 1.1 .59 82.01
50 1.1 .57 85.44 1.1 .57 84.81 1.09 .58 82.48
51 1.08 .56 85.88 1.09 .56 85.26 1.08 .57 82.93
52 1.07 .55 86.32 1.07 .53 85.68 1.07 .56 83.38
53 1.06 .53 86.74 1.06 .52 86.1 1.06 .55 83.82
54 1.05 .51 87.15 1.05 .51 86.5 1.05 .54 84.26
55 1.03 .49 87.55 1.04 .5 86.9 1.04 .53 84.68
56 1.02 .48 87.93 1.02 .49 87.3 1.03 .52 85.1
57 1.01 .48 88.32 1.01 .48 87.68 1.02 .52 85.51
58 .99 .47 88.69 1. .47 88.06 1.01 .51 85.92
59 .98 .47 89.07 .99 .46 88.43 1. .5 86.32
60 .97 .45 89.43 .97 .45 88.79 1. .49 86.71
61 .96 .44 89.79 .96 .44 89.14 .99 .47 87.09
62 .94 .43 90.13 .95 .43 89.48 .98 .47 87.46
63 .93 .42 90.46 .94 .42 89.82 .97 .46 87.82
64 .92 .41 90.8 .92 .41 90.15 .96 .45 88.19
65 .91 .41 91.12 .91 .4 90.47 .95 .44 88.54
66 .89 .4 91.44 .9 .4 90.79 .94 .43 88.88
67 .88 .39 91.75 .89 .39 91.1 .94 .42 89.22
68 .87 .38 92.05 .88 .38 91.4 .93 .42 89.56
69 .86 .38 92.35 .87 .37 91.7 .92 .4 89.88
70 .85 .37 92.65 .86 .36 91.99 .91 .4 90.2
71 .84 .34 92.92 .85 .36 92.27 .91 .4 90.52
339
72 .83 .34 93.2 .83 .34 92.55 .9 .39 90.84
73 .81 .33 93.46 .82 .34 92.81 .89 .39 91.15
74 .8 .32 93.72 .81 .33 93.08 .88 .38 91.45
75 .79 .31 93.97 .8 .32 93.34 .87 .37 91.74
76 .78 .31 94.21 .79 .31 93.59 .86 .36 92.03
77 .77 .3 94.46 .78 .31 93.84 .85 .35 92.31
78 .76 .29 94.69 .77 .31 94.08 .85 .35 92.59
79 .75 .28 94.92 .76 .29 94.32 .84 .34 92.86
80 .74 .28 95.14 .75 .29 94.55 .83 .33 93.12
81 .73 .27 95.36 .74 .28 94.78 .82 .33 93.39
82 .72 .26 95.57 .72 .27 95. .81 .32 93.64
83 .71 .26 95.78 .72 .27 95.21 .81 .31 93.89
84 .7 .25 95.97 .71 .26 95.42 .8 .31 94.14
85 .69 .24 96.17 .69 .26 95.62 .79 .31 94.38
86 .68 .23 96.35 .69 .25 95.82 .78 .3 94.62
87 .67 .23 96.53 .67 .24 96.01 .78 .29 94.86
88 .66 .22 96.71 .67 .23 96.2 .77 .29 95.09
89 .65 .2 96.87 .66 .23 96.38 .76 .28 95.31
90 .64 .2 97.03 .65 .22 96.56 .75 .27 95.53
91 .63 .19 97.18 .64 .22 96.73 .74 .26 95.74
92 .61 .19 97.33 .63 .21 96.9 .74 .26 95.94
93 .6 .18 97.48 .62 .2 97.06 .73 .26 96.15
94 .6 .18 97.62 .61 .2 97.22 .72 .25 96.35
95 .58 .17 97.76 .59 .2 97.38 .71 .25 96.55
96 .58 .17 97.89 .59 .19 97.53 .71 .24 96.74
97 .57 .16 98.03 .58 .18 97.67 .7 .24 96.93
98 .55 .16 98.15 .57 .18 97.82 .69 .23 97.11
99 .55 .15 98.28 .56 .17 97.95 .68 .21 97.28
100 .54 .15 98.39 .55 .17 98.09 .68 .2 97.44
101 .53 .14 98.51 .54 .16 98.21 .67 .2 97.6
102 .52 .13 98.61 .53 .15 98.33 .66 .19 97.75
103 .51 .13 98.72 .52 .15 98.45 .65 .18 97.89
104 .5 .12 98.81 .51 .14 98.56 .64 .18 98.04
105 .49 .12 98.91 .5 .14 98.67 .64 .18 98.18
106 .48 .11 99. .49 .13 98.77 .63 .17 98.32
107 .47 .11 99.09 .49 .12 98.87 .62 .17 98.45
108 .46 .11 99.17 .47 .12 98.96 .61 .16 98.58
109 .45 .1 99.25 .46 .12 99.06 .6 .16 98.71
110 .44 .1 99.33 .45 .11 99.15 .6 .15 98.83
111 .43 .09 99.4 .45 .11 99.23 .59 .15 98.94
112 .42 .09 99.47 .44 .1 99.31 .58 .14 99.06
113 .42 .08 99.54 .43 .1 99.39 .57 .14 99.17
114 .4 .08 99.6 .42 .09 99.46 .56 .13 99.27
340
115 .39 .07 99.66 .41 .09 99.54 .56 .12 99.37
116 .38 .07 99.71 .4 .08 99.6 .55 .12 99.46
117 .37 .07 99.77 .39 .08 99.67 .54 .12 99.56
118 .36 .06 99.81 .38 .08 99.73 .53 .1 99.64
119 .35 .06 99.86 .37 .07 99.78 .52 .1 99.71
120 .34 .05 99.9 .36 .06 99.83 .51 .09 99.79
121 .33 .05 99.94 .35 .06 99.88 .5 .09 99.86
122 .32 .04 99.97 .34 .05 99.92 .49 .08 99.92
123 .3 .03 99.99 .32 .04 99.96 .48 .05 99.96
124 .29 .02 100. .31 .04 99.99 .47 .04 99.99
125 .28 . 100. .29 .02 100. .46 .02 100.
341
Appendix 3.A: Comparison of Eigenvalues Generated Using EFA and Parallel
Analysis: For Merchandising, Manufacturing and Combined Sectors
Source: Computed in the online Parallel Analysis Engine by Patil Vivek H, Surendra N.
Singh, Sanjay Mishra, and D. Todd Donavan (2017).
Summary of the parallel analysis (Merchandising)

Component or Mean EFA Percentile Variance
Factor Eigenvalue eigenvalue Eigenvalue Explained
22 1.527445 1.514 1.553349 65.486
This table indicates that the number of factors to be retained based on the parallel analysis
is 22 factors. These factors in the EFA explains only
Summary of the parallel analysis (Manufacturing)

Component or Mean EFA Percentile Variance
Factor Eigenvalue eigenvalue Eigenvalue Explained
21 1.563419 1.564 1.585857 64.175
22 1.543256 1.511 1.567612 65.384
This table indicates that the number of factors to be retained based on the parallel analysis
is 21 factors.
Appendix 3.A. i) Parallel Analysis and Total Variance Explained for the Manufacturing
Sector
Number of Variables in Your Dataset to be Factor Analysed (Please change) ……….125,
Sample Size of Your Dataset ……………………………………………………...….502,
Type of Analysis…………………………………….…… Principal component analysis,
Number of Random Correlation Matrices to Generate: ……………...…….default of 100
Percentile of Eigenvalues …………………………….……. the default of 95th percentile
seed ………………………………………………………………………………….1000
342
Appendix 3.B) Confirmatory Factor Analysis
Appendix 3.B.I) Confirmatory Factor Analysis Before Reduction (23 factor 108
items)
343
Appendix 3.B.II Result of the CFA Based on 23 Factors
MaxR(H
S.No Factors CR AVE MSV
)
1 Mark_Orient .93 .72 .14 .93
2 Formalization .79 .43 .23 .80
3 Futurity .85 .54 .03 .85
4 P_Growth .92 .70 .24 .93
5 G_PrepNeed .88 .51 .24 .88
6 Aggressive .80 .50 .01 .80
7 Innovativeness .80 .50 .24 .80
8 Manuficience .89 .74 .25 .94
9 Riskiness .77 .46 .03 .77
10 RiskTaki .87 .70 .13 .87
11 Proactive .85 .59 .27 .85
12 Org_Learning .95 .87 .11 .97
13 Dynamism .90 .57 .24 .91
14 P_Efficiency .88 .51 .27 .88
15 Gov_Regu .90 .60 .27 .91
16 Competency .85 .51 .08 .97
17 So_Network .87 .63 .01 .91
18 Gov_Servi1T .91 .68 .04 .92
19 Gov_Servi2T .91 .67 .04 .92
20 Trust .88 .64 .27 .88
21 Corru_Ori .83 .56 .01 .86
22 Family_Ori .76 .44 .01 .76
23 Bu_Network .80 .51 .04 .83
1 Convergent Validity: the AVE for Formalization is less than 0.50. Try removing
Formalization4a to improve AVE.
1 Convergent Validity: the AVE for Reskiness is less than 0.50. Try removing
RiskTreat2a to improve AVE.
1 Convergent Validity: the AVE for Family_Ori is less than 0.50. Try removing
Family_Orient11g to improve AVE.
References
Significance of Correlations:
† p < 0.100
* p < 0.050
** p < 0.010
*** p < 0.001
344
Thresholds From:
Hu, L., Bentler, P.M. (1999), "Cutoff Criteria for Fit Indexes in Covariance Structure
Analysis: Conventional Criteria Versus New Alternatives" SEM vol. 6(1), pp. 1-55.
1
Malhotra N. K., Dash S. argues that AVE is often too strict, and reliability can be
established through CR alone.
Malhotra N. K., Dash S. (2011). Marketing Research an Applied Orientation. London:
Pearson Publishing.
--If you would like to cite this tool directly, please use the following: Gaskin, J. & Lim,
J. (2016), "Master Validity Tool", AMOS Plugin. Gaskination's StatWiki.
108 items and 23 constructs from EFA after reducing 125 items in EFA and parallel
analysis.
Appendix 3.B.III Result of the CFA Based on 16 Factors
Loading (Merged Regression Weights)

Predictor Outcome Std Beta
Mark_Orient MrktOrient5h .881
Mark_Orient MrktOrient5j .846 ***
Mark_Orient MrktOrient5i .877 ***
Mark_Orient MrktOrient5k .799 ***
Mark_Orient MrktOrient5g .848 ***
Formalization Formalization4e .763 ***
Formalization Formalization4d .701 ***
Formalization Formalization4b .659
Futurity Futurity1h .752
Futurity Futurity1i .729 ***
Futurity Futurity1j .732 ***
Futurity Futurity1g .730 ***
Futurity Futurity1f .728 ***
P_Growth PerGrowth1d 0.844
P_Growth PerGrowth1e .845 ***
P_Growth PerGrowth1c .890 ***
P_Growth PerGrowth1b .818 ***
P_Growth PerGrowth1a .788 ***
G_PrepNeed Need4Achievem6e 0.807
G_PrepNeed Need4Achievem6f .759 ***
G_PrepNeed Need4Achievem6d .703 ***
G_PrepNeed Need4Achievem6g .726 ***
345
Aggressive Aggressive2h .712
Aggressive Aggressive2g .740 ***
Aggressive Aggressive2e .712 ***
RiskTaki RiskT_Prop3b .843
RiskTaki RiskT_Prop3a .837 ***
RiskTaki RiskT_Prop5c .827 ***
Proactive Proactive8b .741
Proactive Proactive8d .791 ***
Proactive Proactive8a .802 ***
Proactive Proactive8c .730 ***
Org_Learning Org_Learning9f .861
Org_Learning Org_Learning9h .956 ***
Org_Learning Org_Learning9i .971 ***
Dynamism Cu_Heterog10k .797
Dynamism Cu_Heterog10j .757 ***
Dynamism ComIntensity10n .761 ***
Dynamism ComIntensity10m .843 ***
Dynamism ComIntensity10l .819 ***
P_Efficiency PersEfficacy7e .704
P_Efficiency PersEfficacy7d .786 ***
P_Efficiency PersEfficacy7c .775 ***
P_Efficiency PersEfficacy7b .736 ***
Gov_Regu Gov_Regulation15g .705
Gov_Regu Gov_Regulation15d .760 ***
Gov_Regu Gov_Regulation15c .864 ***
Gov_Regu Gov_Regulation15b .814 ***
So_Network Social_Net12i .862
So_Network Social_Net12g .920 ***
So_Network Social_Net12f .755 ***
Gov_Servi1T Gov_Services14c .881 ***
Gov_Servi2T Gov_Services14g .880
Gov_Servi2T Gov_Services14d .662 ***
Gov_Servi2T Gov_Services14b .809 ***
Trust Trust11c .826 ***
Trust Trust11b .803 ***
Trust Trust11a .755
Trust Trust11d .813 ***
Dynamism MrktDyna10g .721 ***
Gov_Regu Gov_Regulation15a .701 ***
Gov_Servi1T Gov_Services14j .834 ***
Gov_Servi2T Gov_Services14h .842 ***
Gov_Servi2T Gov_Services14i .867 ***
346
Gov_Regu Gov_Regulation15e .780 ***
Gov_Servi1T Gov_Services14a .849 ***
Gov_Servi1T Gov_Services14f .866
References
Significance of Correlations:
*** p < 0.001
** p < 0.010
* p < 0.050
✝ p < 0.100
If you would like to cite this tool directly, please use the
following: Gaskin, J. & Lim, J. (2018), "Merge SRW
Tables", AMOS Plugin. Gaskination's StatWiki.
347
Appendix 4: Assumptions
Appendix 4.1 Transformation to Normal Distribution of the Four Growth
Measures
Appendix 4.1A Transformation to Normal Distribution (Employment Growth)
Source: Calculated in SPSS with researcher’s data
348
Appendix 4.1B Transformation to Normal Distribution (Capital Growth)
349
Appendix 4.1C Transformation to Normal Distribution (Sales Growth)
350
Appendix 4.1D Transformation to Normal Distribution (Perceived Growth)
351
Appendix 4.2 The Assumption of Zero Conditional Mean of Errors
“The errors are assumed to have a mean of zero for any given value, or combination of
values, on the predictor variables” (Fox, 1997; Weisberg, 2005). Williams, Grajales, &
Kurkiewicz, (2013).
Table ……summary statistics of the Unstandardized Residuals to the four dependent

variables
summary statistics Perceived Capital Growth Sales Growth Employee
Growth Growth
N Valid 1038 1028 1036
Missing 0 10 02
Mean 0.000 0.000 0.000 0.000
Median -0.092 0.027 0.001 0.014
Std. Deviation 0.672 0.337 0.059 0.131
Range 5.225 2.316 0.389 1.731
Minimum -2.506 -1.272 -0.181 -1.086
Maximum 2.719 1.043 0.208 0.644
When the conditional means of the errors are zero (and the other assumptions are also
met), the desirable properties of OLS estimators (so does maximum likelihood in SEM)
apply regardless of whether the X values are fixed, as in an experiment, or random, as in
sampled from a population (Berk, 2004; Snedecor & Cochran, 1980). On the other hand,
if this assumption is violated, regression coefficients may be biased (Berk, 2004). Hence,
our model met this assumption which would make it eligible for easy analysis in the SEM.
352
Appendix 4.3) The Assumption of Independence of Regression errors
Appendix 4.3A) Independence of Regression Errors Through Durbin-Watson
Durbin-Watson as Test for independent of residuals

Model Summary
Std. Error
R Adjusted Durbin-
Model R of the
Square R Square Watson
Estimate
Perceived Growth 0.558 0.312 0.3 0.6774461 2.051
Sales Growth 0.147 0.022 0.014 0.05891 1.912
Capital Growth 0.425 0.181 0.172 0.33862 2.021
Employment Growth 0.82 0.673 0.671 0.13179 2.036
Test for independent of residuals
“The Durbin-Watson statistic ranges in value from 0 to 4. A value near 2 indicates non-
autocorrelation; a value toward 0 indicates positive autocorrelation; a value toward 4 indicates
negative autocorrelation.” “In four of the models in this study, the Durbin-Watson (DW) value
was beyond 2.036 critical value, which indicates all the residuals are not serially autocorrelated.
Therefore, the data achieved the assumption of independent residual The ML regression
method used” The Durbin-Watson (1950), Cited in White (1992 said that “statistic (DW or d)
is a commonly used and routinely reported diagnostic test for the presence of first-order auto
or serial correlation in the error of a time-series regression model. The statistic is calculated
using the residuals from the regression model.”
353
Appendix 4.3B) Testing Independence of Regression Errors and Linearity: Using Scatter
Plot (Four Models)
Sources: Calculated in SPSS Linear Regression Function, and Rearranged in Excel Sheet, and
copied using Lenovo sniping tool
“As an indicator of independent of residuals, all the scatterplots are cloth to rectangles. Means
at least no regression model out of the four models seen a concerning trend of serial correlation
among residuals, which might have been impacted the robustness of the estimation. Besides,
as can be seen in appendix 4.3B, most of the residual data points are distributed between 3 and
-3 standard deviations. This implies that most of the standardized residuals are cloth to
normality.”
354
Appendix 4.4 Assumption of Linearity and Normality of Errors Distribution
The other assumption suggested by some researchers to check before conducting any least-
square related regression is the linearity of the relationship between the predicting residuals
and of the residual estimate residuals. This assumption
Sources: Calculated in SPSS Linear Regression Function, and Rearranged in Excel Sheet, and
copied using Lenovo sniping tool
355
Appendix 4.5) Multicollinearity Issues Using Pearson Correlation of All Continues Variables
List of Variables
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
1 EmpGrowB_N 1.
2 EmplGrowE_N .203** 1.
3 CapGrowB_N .812** .092** 1.
4 CapGrowE_N .512** .103** .683** 1.
5 SaleGrowth_N -.04 -.06 -.04 -.04 1.
6 P_Growth_N .02 .02 .01 .03 -.01 1.
**
ProfGrowE_N -.03 .04 -.03 -.03 .277 -.01 1.
7
8 Capital_Initial43 -.155** .05 -.172** -.078* -.02 .00 -.01 1.
** **
9 Firm_age39a -.385** .04 -.388 -.222 .04 -.01 -.02 .105** 1.
** **
10 Age_OM23a -.294** .04 -.297 -.163 .03 -.01 -.02 .107** .739** 1.
** **
11 BusiEx_OM26a -.232** .00 -.235 -.188 .01 .01 -.02 .142** .652** .608** 1.
** **
12 Beg_Employee42 -.196** .05 -.137 -.099 .00 .02 .00 .592** .110** .100** .166** 1.
13 Mark_Orient -.01 -.03 .064* .03 -.02 .206** .01 -.04 -.04 -.03 -.06 .00 1.
* ** *
14 Futurity -.05 .00 -.066 -.089 .01 .03 .062 .04 .04 .01 .02 -.01 .03 1.
15 G_PrepNeed .04 .02 .03 .02 .03 .219** .00 -.01 -.01 .04 .02 .06 .243** .076* 1.
16 Proactive .04 .02 .063* .03 .05 .345** -.03 -.04 -.071* -.02 -.06 .01 .315** .03 .306** 1.
17 Aggressive .00 -.02 .04 .03 .00 .01 -.05 -.03 -.03 .00 .02 .01 .03 .04 .03 .02 1.
18 Dynamism -.04 -.03 -.03 -.069* -.02 .444** .04 .04 -.01 -.04 .00 .05 .169** .03 .01 .193** -.02 1.
* * ** ** * ** **
19 P_Efficiency .05 .05 .061 .076 .00 .210 .00 .00 -.02 .02 -.03 .00 .082 .070 .377 .444 .03 .01 1.
20 Formalization .01 .02 .04 -.02 -.06 .193** -.01 -.05 -.068* -.02 -.05 .01 .297** .129** .373** .314** .03 .06 .289** 1.
21 Gov_Servi2T -.01 -.04 -.01 -.01 .01 -.05 -.02 .02 .00 .01 .01 -.01 -.03 .05 -.05 -.01 .01 .04 .01 .01 1.
22 Trust .00 -.01 .03 .04 -.01 .164** -.04 .01 -.01 .00 .01 -.02 .085** .02 .143** .293** .05 .00 .408** .164** -.03 1.
23 So_Network .03 .065* .05 .063* -.05 -.01 -.03 .00 .03 .02 .03 .00 -.02 -.01 -.05 -.06 .01 .04 .01 -.100** -.01 -.065* 1.
24 Org_Learning .02 -.03 .01 .05 .06 .170** .00 -.01 -.02 -.04 -.01 -.02 .01 -.01 .114** .142** .01 .064* .239** .06 .01 .315** .00 1.
** ** * ** ** ** * **
.00 .02 .01 .02 .01 .222 -.01 -.03 .00 .04 .01 -.02 .173 .00 .073 .324 .02 .05 .427 .107 -.091 .469 -.03 .254** 1.
*
25 Gov_Regu
26 Gov_Servi1T -.01 .03 -.03 .00 -.076* .063* .03 -.03 -.04 -.04 .00 .00 -.04 -.04 -.01 -.01 .03 .02 -.069* -.096** .179** -.093** .06 -.04 -.072* 1.
** * ** ** ** ** ** *
27 RiskTaki -.03 -.01 -.04 -.02 .01 -.06 -.02 .124 .02 .01 .02 .067 -.335 -.03 -.206 -.152 -.01 -.04 -.164 -.274 .00 -.079 .01 -.01 -.068* -.03 1
Source: Both dependent and independent continuous variables calculated in SPSS Pearson Correlation function
356
Appendix 4.6 Different Model Tests
Appendix 4.6A Test of Common Method Bias

“The Harman’s single-factor model is a test of common method variance, used to identify
an appropriate number of factors for a particular model” (Harman, 1976). From the test
of this common method variance in SPSS, no single factor was found explaining variance
of more than 13.27 percent. This is far below the threshold (50%) of Harman’s
recommendation. This result allows the study to proceed to the next level. variance
explaining power to the model.
Appendix Test of Common Method Bias (Harman's single factor test in SPSS) after
confirmatory factor analysis
Total Variance Explained

Extraction Sums of Squared
Initial Eigenvalues Loadings
% of Cumulative % of Cumulative
Factor Total Variance % Total Variance %
1 9.67 14.44 14.44 8.89 13.27 13.27
2 5.37 8.02 22.45
3 4.39 6.56 29.01
4 4.07 6.08 35.09
5 3.33 4.97 40.06
6 2.98 4.45 44.52
7 2.80 4.18 48.70
8 2.48 3.70 52.40
9 2.30 3.43 55.83
10 2.08 3.10 58.93
11 2.04 3.04 61.98
12 1.84 2.75 64.72
13 1.66 2.47 67.20
14 1.59 2.38 69.57
15 1.34 2.00 71.57
16 1.16 1.73 73.30
17 0.76 1.13 74.43
18 0.74 1.11 75.54
19 0.68 1.01 76.55
20 0.64 0.95 77.50
21 0.60 0.90 78.40
22 0.58 0.86 79.26
23 0.55 0.81 80.08
24 0.54 0.81 80.88
25 0.51 0.77 81.65
26 0.51 0.76 82.41
27 0.49 0.73 83.14
28 0.47 0.71 83.84
357
29 0.47 0.70 84.55
30 0.47 0.70 85.25
31 0.45 0.67 85.92
32 0.43 0.64 86.56
33 0.43 0.64 87.21
34 0.42 0.63 87.83
35 0.39 0.58 88.42
36 0.39 0.58 89.00
37 0.38 0.57 89.57
38 0.38 0.57 90.14
39 0.37 0.55 90.69
40 0.37 0.55 91.24
41 0.34 0.51 91.76
42 0.34 0.50 92.26
43 0.33 0.49 92.75
44 0.31 0.46 93.21
45 0.30 0.45 93.66
46 0.30 0.45 94.10
47 0.28 0.42 94.52
48 0.28 0.41 94.93
49 0.27 0.40 95.34
50 0.25 0.38 95.71
51 0.25 0.37 96.08
52 0.23 0.34 96.43
53 0.22 0.33 96.76
54 0.22 0.32 97.08
55 0.20 0.30 97.38
56 0.19 0.29 97.67
57 0.18 0.28 97.94
58 0.18 0.27 98.21
59 0.17 0.26 98.46
60 0.16 0.25 98.71
61 0.16 0.24 98.95
62 0.14 0.21 99.16
63 0.14 0.21 99.37
64 0.13 0.20 99.57
65 0.12 0.18 99.75
66 0.11 0.17 99.92
67 0.05 0.08 100.00
Extraction Method: Principal Axis Factoring.
Source: Computed in SPSS
Appendix 4.6B Specific Bias Test (Zero Constraints Test)

Zero Constraints Test (test if there is a specific bias?)
X2 DF Delta p-value
Unconstrained Model 6401 2024 X2=0.000
1
Zero Constrained Model 6401 2024 DF=0
358
Conclusion: “the null hypothesis cannot be rejected (i.e., the constrained and
unconstrained models are the same or invariant” Gaskin, J. & Lim, J. (2017). “You have
demonstrated that you were unable to detect any specific response bias affecting your
model. Therefore, no bias distribution test was made (of equal constraints). You can move
on to causal modelling, but make sure to retain the Specific Bias construct(s) to include
as a control in the causal model.” "CFA Tool", AMOS Plugin. Gaskination's StatWiki
Source: Researcher’s result using AMOS 24 with plug-in "CFA Tool", AMOS Plugin.
Gaskination's StatWiki
359
Appendixes 5: Result of Structural Equation Modelling
Appendix 5A1: Standardized Structural Weights of the Merchandising Sector
360
Appendix 5A2: Direct, Indirect and Total Effect of Merchandising Sector (Structural Weights)
Standardized Total Effects (Merchandising - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Beg_Employee42
Capital_Initial43
BusinessEx_P28
R_BusiEx_OM2
BF_Finance19a
SaleGrowth_N
ProfGrowE_N
CapGrowB_N
Org_Learning
Formalization
Gov_Servi1T
Firm_age39a
Age_OM23a
P_Efficiency
Mark_Orient
G_PrepNeed
So_Network
Fassion_pro
Devaluation
Dynamism
Gov_Regu
Food_pro
Proactive
RiskTaki
Forex
Trust
7a
a
SaleGrowth_N .03 .02 .01 -.06 -.06 .04 -.12 .07 . . . . . . . . . . . . . . . . . .

ProfGrowE_N .01 . . -.01 -.01 .01 -.03 .02 .21 . . . . . . . . . . . . . . . . .
R_BusiEx_OM27
-.07 . . . . . . . . . . . . . . . . . . . . . . . . .
a
CapGrowB_N .03 . . .07 . . . -.01 -.03 -.05 -.01 -.33 -.03 .01 .07 .03 . . . . . . . . . .
EmpGrowB_N .02 . . .05 . . . -.01 -.02 -.04 -.01 -.32 -.01 .02 .05 .02 . . . . -.04 .74 . . . .
P_Growth -.01 .02 -.02 . .07 .06 .06 .14 . . . . . .06 .02 .06 .04 -.03 .04 .03 . . .11 . .43 .12
Standardized Direct Effects (Merchandising - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
SaleGrowth_N .03 .02 .01 -.06 -.06 .04 -.12 .07 . . . . . . . . . . . . . . . . . .
ProfGrowE_N . . . . . . . . .21 . . . . . . . . . . . . . . . . .
R_BusiEx_OM27
-.07 . . . . . . . . . . . . . . . . . . . . . . . . .
a
CapGrowB_N .04 . . .07 . . . -.01 -.02 -.05 -.01 -.33 -.03 .01 .07 .03 . . . . . . . . . .
EmpGrowB_N -.01 . . . . . . . . . . -.08 .01 .01 . . . . . . -.04 .74 . . . .
P_Growth -.01 .02 -.02 . .07 .06 .06 .14 . . . . . .06 .02 .06 .04 -.03 .04 .03 . . .11 . .43 .12
Standardized Indirect Effects (Merchandising - Structural weights)
361
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
SaleGrowth_N . . . . . . . . . . . . . . . . . . . . . . . . . .
ProfGrowE_N .01 . . -.01 -.01 .01 -.03 .02 . . . . . . . . . . . . . . . . . .
R_BusiEx_OM27
. . . . . . . . . . . . . . . . . . . . . . . . . .
a
CapGrowB_N . . . . . . . . -.01 . . . . . . . . . . . . . . . . .
EmpGrowB_N .03 . . .05 . . . -.01 -.02 -.04 -.01 -.24 -.02 .01 .05 .02 . . . . . . . . . .
P_Growth . . . . . . . . . . . . . . . . . . . . . . . . . .
362
Appendix 5B1: Standardized Structural Weights of the Manufacturing Sector
363
Appendix 5B2: Direct, Indirect and Total Effect of Manufacturing Sector (Structural Weights)
Standardized Total Effects (Manufacturing - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
R_BusiEx_OM27
BusinessEx_P28a
aBeg_Employee42
Capital_Initial43
BF_Finance19a
SaleGrowth_N
ProfGrowE_N
CapGrowB_N
Org_Learning
Formalization
Gov_Servi1T
Firm_age39a
Age_OM23a
P_Efficiency
Mark_Orient
G_PrepNeed
So_Network
Fassion_pro
Devaluation
Dynamism
Gov_Regu
Food_pro
Proactive
RiskTaki
Forex
Trust
SaleGrowth_N .05 .04 .04 -.04 -.09 .06 -.07 .06 . . . . . . . . . . . . . . . . . .
ProfGrowE_N .02 .02 .02 -.02 -.05 .03 -.04 .03 .51 . . . . . . . . . . . . . . . . .
R_BusiEx_OM2
-.1 . . . . . . . . . . . . . . . . . . . . . . . . .
7a
CapGrowB_N .06 . . .04 . . . .01 -.03 -.02 -.02 -.4 -.18 . .03 .05 . . . . . . . . . .
EmpGrowB_N .06 . . .03 . . . .01 -.03 -.01 -.03 -.39 -.08 -.01 .03 .04 . . . . -.16 .84 . . . .
P_Growth .01 -.02 . . .09 .08 .07 .14 . . . . . .05 .03 .03 .01 -.03 .02 .04 . . .11 .04 .35 .12
Standardized Direct Effects (Manufacturing - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
SaleGrowth_N .05 .04 .04 -.04 -.09 .06 -.07 .06 . . . . . . . . . . . . . . . . . .
ProfGrowE_N . . . . . . . . .51 . . . . . . . . . . . . . . . . .
R_BusiEx_OM2
-.1 . . . . . . . . . . . . . . . . . . . . . . . . .
7a
CapGrowB_N .06 . . .04 . . . .01 -.02 -.02 -.02 -.4 -.18 . .03 .05 . . . . . . . . . .
EmpGrowB_N .01 . . . . . . . . . -.01 -.06 .07 -.01 .01 . . . . . -.16 .84 . . . .
P_Growth .02 -.02 . . .09 .08 .07 .14 . . . . . .05 .03 .03 .01 -.03 .02 .04 . . .11 .04 .35 .12
364
Standardized Indirect Effects (Manufacturing - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
SaleGrowth_N . . . . . . . . . . . . . . . . . . . . . . . . . .
ProfGrowE_N .02 .02 .02 -.02 -.05 .03 -.04 .03 . . . . . . . . . . . . . . . . . .
R_BusiEx_OM2
. . . . . . . . . . . . . . . . . . . . . . . . . .
7a
CapGrowB_N . . . . . . . . -.01 . . . . . . . . . . . . . . . . .
EmpGrowB_N .05 . . .03 . . . .01 -.03 -.01 -.02 -.33 -.15 . .02 .04 . . . . . . . . . .
P_Growth . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix 5C: Direct, Indirect and Total Effect of Combined Sectors (Structural Weights)
Standardized Total Effects (Combined Data - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Fassion_p
x_OM27a
Formaliza
Gov_Serv
BF_Finan
Beg_Emp
SaleGrow
ProfGrow
Mark_Ori
Food_pro
Org_Lear
CapGrow
Devaluati
Firm_age
Gov_Reg
Proactive
G_PrepN
Age_OM
P_Efficie
So_Netw
Capital_I
RiskTaki
R_BusiE
Ex_P28a
Dynamis
Business
loyee42
nitial43
Forex
ce19a
Trust
th_N
B_N
E_N
ning
tion
23a
39a
ncy
i1T
eed
ork
ent
on
ro
m
u
SaleGrowth_N .04 .03 .03 -.05 -.08 .05 -.1 .07 . . . . . . . . . . . . . . . . . .
ProfGrowE_N .01 .01 .01 -.01 -.02 .01 -.03 .02 .28 . . . . . . . . . . . . . . . . .
R_BusiEx_O
-.09 . . . . . . . . . . . . . . . . . . . . . . . . .
M27a
CapGrowB_N .04 . . .06 . . . . -.03 -.04 -.02 -.36 -.13 . .05 .04 . . . . . . . . . .
EmpGrowB_N .03 . . .04 . . . . -.02 -.03 -.02 -.36 -.05 .01 .04 .03 . . . . -.11 .78 . . . .
P_Growth . . -.01 . .08 .07 .06 .14 . . . . . .06 .02 .05 .02 -.03 .03 .04 . . .11 .02 .39 .12
Standardized Direct Effects (Combined Data - Structural weights)
365
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
SaleGrowth_N .04 .03 .03 -.05 -.08 .05 -.1 .07 . . . . . . . . . . . . . . . . . .
ProfGrowE_N . . . . . . . . .28 . . . . . . . . . . . . . . . . .
R_BusiEx_O
-.09 . . . . . . . . . . . . . . . . . . . . . . . . .
M27a
CapGrowB_N .05 . . .05 . . . . -.02 -.04 -.02 -.36 -.13 . .05 .04 . . . . . . . . . .
EmpGrowB_N . . . . . . . . . . . -.08 .05 .01 . . . . . . -.11 .78 . . . .
P_Growth .01 . -.01 . .08 .07 .06 .14 . . . . . .06 .02 .05 .02 -.03 .03 .04 . . .11 .02 .39 .12
Standardized Indirect Effects (Combined Data - Structural weights)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
SaleGrowth_N . . . . . . . . . . . . . . . . . . . . . . . . . .
ProfGrowE_N .01 .01 .01 -.01 -.02 .01 -.03 .02 . . . . . . . . . . . . . . . . . .
R_BusiEx_O
. . . . . . . . . . . . . . . . . . . . . . . . . .
M27a
CapGrowB_N . . . . . . . . -.01 . . . . . . . . . . . . . . . . .
EmpGrowB_N .03 . . .04 . . . . -.02 -.03 -.02 -.28 -.1 . .04 .03 . . . . . . . . . .
P_Growth . . . . . . . . . . . . . . . . . . . . . . . . . .
366
Appendixes 6: Map of The Research Area
Map of Ethiopia in the African Continent (The red part of Africa is Ethiopia)
Source: Shutter Stock Pictures
367
Map of Ethiopia: The pined area in the map is Addis Ababa city, which is our study area
Source: Dreamstime.com
368
Appendixes 7: Letters of Support
Letter 1) From Ethiopian Embassy Delhi, India
369
Letter 2) From Semera University, Ethiopian (Amharic Version)
370
Letter 3) From Semera University, Ethiopian (English Version)
371
Appendix 8: Published Articles (3 Articles)
Appendix 8.A: Scopus Page Indicating Publication of Two Articles (8.B and 8.C
shows abstracts of the two articles)
372
Appendix 8.B: Published in Scopus Listed Journal in 2019
Appendix 8.C: Published in Scopus Listed Journal in 2019
373
Appendix 8.D: Published in UGC Approved Journal in 2019
374

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An Empirical Analysis of Growth Determinants of

Firms in Ethiopia: A Critical Study of

Kalinga Institute of Industrial Technology (KIIT)

For Partial Fulfilment of the Requirements of the Degree of

Under the Guidance and Supervision of

KIIT University, Kalinga School of Management (KSOM)

Kalinga Institute of Industrial Technology (KIIT)

For Partial Fulfilment of the Requirements of the Degree of

Under the Guidance and Supervision of

KIIT University, Kalinga School of Management (KSOM)

Dr. Shikta Singh

Supervisor, Kalinga School of Management (KSOM)

KIIT University, Bhubaneswar, Odisha

Mesaud Muhamed Hagos

Dr. Shikta Singh

Supervisor, Kalinga School of Management (KSOM)

KIIT University, Bhubaneswar, Odisha

I want to express my deepest gratitude to my beloved wife Semira Ahmed Mohammed

Mesaud Muhamed Hagos

1.2 Background of the study .................................................................................. 13

1.3 Problem Statement ........................................................................................... 16

1.4 The Objective of the study ............................................................................... 21

1.5 Research Questions .......................................................................................... 21

1.6 Hypothesis ........................................................................................................ 22

1.7 Significance of the study .................................................................................. 23

1.8 Scope of the study ............................................................................................ 24

1.9 Organization of the Study ................................................................................ 25

2.2 Size Comparisons Firms Across Countries and Organizations........................ 28

Section I: Theoretical Review of Firm Growth ........................................................... 32

2.3 Theoretical Review of Firm Growth ................................................................ 32

2.3.1 Theories from Natural Sciences .......................................................................... 33

2.4.1 Views Regarding the Meaning of Growth for Business Enterprises................... 39

2.5 Empirical Review of Growth Factors .............................................................. 49

2.5.1 Individual Dimension .......................................................................................... 50

2.6.1 Introduction ......................................................................................................... 76

2.8 Conceptual Framework .................................................................................... 92

2.8.1 Dependent variable.............................................................................................. 92

3.2 Research Approach ........................................................................................ 103

3.3 Research strategy ........................................................................................... 103

3.4 Sampling and Data Collection ....................................................................... 104

3.4.1 Unit of Analysis ................................................................................................ 104

3.6 Data analysis strategy..................................................................................... 111

Chapter Four ............................................................................................................... 117

Part I .......................................................................................................................... 118

4.2 Descriptive Data Analysis .............................................................................. 118

4.2.1 Socio-Demographic Background ...................................................................... 118

4.4.1 PLUM - Ordinal Regression ............................................................................. 178

4.5 Uni-Dimensionality of Factors (Dealing with Measurement) ....................... 197

I) Retaining of Constructs Using Parallel Analysis and EFA ................................... 199

4.7 Path Analysis in SEM (Firms’ Growth Determinants) .................................. 222

Regression Result (factors affecting alternative growth measures) .............. 226

5.2 Summary and Conclusion .............................................................................. 255

5.3 Limitation of the Study .................................................................................. 262

i. Dynamic Nature of Firms Growth Process ............................................................... 262

References .................................................................................................................... 268

Appendix 1A: Survey questionnaire -English Version ..................................................... 306

Appendixes 7: Letters of Support.............................................................................. 369

Appendix 8: Published Articles (3 Articles) ............................................................. 372

Figure 4-1 Age of Respondents for Merchandising firms ............................................ 122

Figure 4-2 Age of Respondents for Manufacturing firms ........................................... 122

Figure 4-3 Education Background of Respondents (Combined Data) ......................... 126

Figure 4-6: Distribution of Customers Merchandising................................................. 136

Figure 4-7: Distribution of Customers Manufacturing ................................................. 136