Frugality, family cohesiveness, strategic openness and small business financing in Uganda

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University of Dar es Salaam
The purpose of this study was to investigate the effects of frugality, family cohesiveness in business and strategic openness on small business financing. In this study, financing refers to the extent of debt in a firm’s capital structure. Data were collected from a cross section of 528 small business firms in Uganda in 2014. Through Multiple Correspondence Analysis, we found out the core dimensions of frugality, family cohesiveness, and strategic openness. Regarding frugality, two dimensions resulted, i.e. spending discipline, which explained a variance of 60 % in frugality and delayed gratification, which explained a variance of 32%. Family cohesiveness constituted one dimension that explained 96% variance. Regarding strategic openness, two dimensions resulted i.e. mixed-openness (80%) and competitor-secretness (10%). We also found that for firms with debt and equity mix, equity composition averaged 55 percent; nonbank debt averaged 30 percent, while bank debt averaged 15 percent of total financing. Friedman ANOVA and Kendall’s coefficient (W) tests results indicated that frugality dimensions and family cohesiveness relatedness contrasted [i.e. spending discipline and family cohesiveness, χ2 = 630, p-value = .001, W= .6, anddelayed gratification and family cohesiveness, χ2 = 463, p-value= .977, W =.4]. Fractional logit regression results revealed that, spending discipline; delayed gratification; and family cohesiveness had significant positive effects on small business financing [spending discipline, delayed gratification and family cohesiveness solely had significant positive effects in specific fractional logit models i.e. debt: asset ratio, debt: equity ratio and, bank debt: asset ratio]. However, spending discipline, delayed gratification, and family cohesiveness had significant positive effects concurrently in the nonbank debt: asset ratio fractional logit model. Furthermore, strategic openness moderation effect on family cohesiveness analyses revealed that with the competitor secretness and mixed openness interaction, superior small business financing result. Therefore, beyond the generalized resource based view (RBV) theory perspectives, additional RBV angles manifest. Particularly, frugality, strategic openness and family cohesiveness distinctly feature as significant in small firm financing resources. For pecking order theory (POT) new perspectives manifest too. Small firms concurrently use financing alternatives, use more of family and friends debt than bank debt, owners’ equity is dominant, yet equity from outsiders is marginal. All these offer new paradigms that may expand the RBV and POT perspectives in the sphere of small firms especially in developing economies.
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG 4027.7U33M37)
Small business, Financing, Uganda
Matama, R. (2017) Frugality, family cohesiveness, strategic openness and small business financing in Uganda, Doctoral dissertation, University of Dar es Salaam, Dar es Salaam.