Ethnic diverse and financing choices affecting of business survival: a case study of New Zealand small- and medium-sized enterprises.
| Autor | Duppati, Geeta |
Introduction
Small- and medium-sized enterprises (SMEs) play a vital role in providing employment and sustaining economic growth in the New Zealand economy. SMEs comprise 97% of all native enterprises employing 30% of the working population and producing 27% of the country's gross domestic product. SMEs dominate all industry groups and increasingly are engaged in innovative activities and business trade/exporting (Small Business Sector Report, 2014).
New Zealand has more ethnic nationalities than the world has countries, which speaks to the country's widespread diversity (Minson, 2013). There are four major ethnic groups in New Zealand: European, Maori, Pacific and Asian. All four groups are largely concentrated on the North Island. The combined regions of Northland, Auckland, Waikato and Bay of Plenty comprise more than half (51%) of New Zealand's total population. The population is likely to increase to 5.13-5.51 million in 2025 (Statistics New Zealand, 2020). Hamilton is expected to be one of the most diverse cities by 2038, with 28% Maori, 23% Asian and 10% Pacific population. Apart from the higher number of Maori, these statistics parallel Auckland's ethnic makeup in 2013 (Statistics New Zealand, 2020). New Zealand's Asian population has almost doubled in size since 2001. Asians as an ethnic group represented 6.6% of the entire population in the 2001 census, grew to 9.2% in the 2006 census and 11.8% in the 2013 census. Pacific ethnic groups increased from 6.9% of the entire population in 2006 to 7.4% in 2013, whereas European ethnicities increased from 67.6% in 2006 to 74% of the population in 2013 (Statistics New Zealand, 2013).
The projections for 2013-2038 indicate that the Maori, Asian and Pacific populations will continue to grow faster than New Zealand's population overall, both in sheer numbers and as a proportion of the total New Zealand population. Looking forward, the growing ethnic diversity in New Zealand will have significant cultural, social, political and economic implications and will affect policymaking.
A vibrant and high-performing SMEs sector is clearly critical to the prosperity of New Zealand; however, how financing choices affect the survival of SMEs is not clear, particularly in diverse ethnic. To explore the survival factors of SMEs, this study focuses on New Zealand SMEs operating in the Hamilton and Waikato regions of New Zealand where different ethnicity is found, specifically, with the intent to:
* examine SMEs' survival factors across different ethnic groups; and
* examine the financing options affecting the survival of those SMEs.
If accessibility issues mitigate as ethnic diversity rises, then this study would naturally provide a great contribution to extant literature. Additionally, the findings of this study could be used to guide the policymakers to use the benefits of potential factors to increase the survival rate in New Zealand SMEs.
The second section of this paper presents the literature relating to ethnic diversity, financing choice and SMEs survival. The third section outlines the research methodology indicating samples, empirical model and frequency distribution analysis. The fourth section presents empirical findings, and the last section discusses the research findings and concludes the whole thesis.
Literature review
Ethnicity is one of the factors relating to the survival of SMEs. Some SMEs in New Zealand have trouble accessing financing because of ethnicity bias of the lenders. Several studies outside the Pacific Rim region have suggested that owners of small businesses from certain demographic groups may have less access to institutional financing than Caucasians (Whites); hence, there is likely discrimination on the basis of race, ethnicity and/or gender (Asiedu et al., 2012; Bates, 1991; Blanchard et al., 2008; Blanchflower et al., 2003; Cavalluzzo and Cavalluzzo, 1998; Cavalluzzo et al, 2002). This limited finance results in failure and existence.
The link between their ethnicities, desires and the financing options becomes critically important information for SMEs and government. Supply and demand dimensions determine the financing choices of SMEs, then affecting their survival. On the supply side, information asymmetries may affect the supply of bank credit through interest rates and credit risk. This happens in two ways: first, an adverse selection effect comes from sorting potential debtors, and second, an incentive effect influences debtors' actions (Stiglitz and Weiss, 1981). From the perspective of demand side financing choices, the pecking order concept implies that owing to the information asymmetries between the firm and potential investors, SMEs will prefer retained earnings to debt, short-term to long-term debt and debt to equity (Myers and Majluf, 1984). The concept offers a financing framework that addresses how agency issues between founders and funding sources affect the funding sequence or the pecking order of founders' financing decisions.
Previous studies mention that funding choices to SMEs are either limited or non-existent, particularly as compared with the choices available to large and publicly traded firms (Abor and Biekpe, 2006; Estwick, 2013; Briozzo et al., 2016). In general, SMEs' financing tends to depend on internally generated sources of capital such as the redeployment of profits or short-term debts (Heyman et al., 2008). Most early-stage funding originates with the founder or founding team (Gartner et al., 2012). During the process of survival creation, founders are more likely to use debt financing first, and later equity financing (Frid, 2015). The preference for debt financing could stem from the desire to maintain control and avoid dilution of their equity stake. Additionally, it could be because of the capital costs of debt and equity. In general, the literature has identified several characteristics uniquely related to the survival of SMEs (Briozzo et al.,2016). These include firm size and age, ownership type and legal form, geographical location, industry sector and asset structure (reflecting the ability to provide collateral).
Research methodology and analysis
Samples
This study combines publicly available data obtained by questionnaires during the third quarter of 2014. The questionnaire was sent to 41 SMEs (Appendix) in the cities of Auckland and Hamilton using purposive sampling, achieving a response rate of 68.3%. The respondents of the survey were either the owners of small businesses or chief executive officers (CEOs) from SMEs' privately held companies. The business entrepreneurs in the sample were asked a series of questions on topics relating to ethnicity, financing, employment, issues and challenges associated with survival and financing. The study also uses categorical, multiple choice and numerical ratings questions throughout the survey to collect financial data such as net profits or sales of SMEs from four groups involving six ethnic nationalities. Table 1 presents survey questions.
Empirical model
Following the literature (Shangqin et al., 2013; (Khermkhan et al., 2015), the study uses multiple linear regression (MLR) models with a binary dependent variable to examine factors affecting SMEs' survival across different ethnicity. The linear probability model (LPM) is consistent with a binary dependent variable. The model regresses a binary variable on a set of explanatory variables using ordinary least squares, whereby the response probability is linear in the parameters. This study investigates whether factors such as firm characteristics, financing methods, competition, innovation, risk-internationalisation, growth and development affect the business continuity in the different phases of the business life cycle.
Firstly, to consider the impact of SMEs' behavioural determinants on firm survival, the basic...
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