Exploring the role of corporate control in SME attitude toward private equity financing

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Small and Medium Enterprises (SMEs) undoubtedly play a vital role in the growth of economies worldwide. Despite this, SMEs are plagued with several difficulties, with access to finance being the primary problem SMEs face. Private equity has been identified as a potent source of capital to foster the growth of SMEs. However, the management control mechanisms instituted by private equity firms to safeguard their investment may be an area of concern for SMEs. The main objective of this paper was to determine the willingness of SMEs to accept private equity, considering the management control mechanisms likely to be instituted by private equity firms. This study adopted a quantitative method of analysis in determining whether firm characteristics and management control mechanism, specifically the involvement of the private equity firm in the human resource issues of the firm and the participation of the private equity firms in operations of the SME, affect the willingness of SMEs to accept private equity. The findings from the study show that management control mechanisms instituted by private equity firms affect the SME's willingness to adopt private equity. However, the involvement of private equity firms in the hiring process of SMEs is more significant in determining the probability of SMEs subscribing to private equity. This paper contributes to the literature on SMEs in Ghana and provides recommendations on how private equity firms can structure contract negotiations to attract SME subscriptions.
Undergraduate thesis submitted to the Department of Business Administration / Computer Science, Ashesi University, in partial fulfillment of Bachelor of Science degree in Business Administration / Computer Science / Management Information Systems, May 2021
SMEs, SME financing, management control mechanisms