Non-bank financing of small and medium size firms in developing economies: Effect of management control systems including large firm affiliation

Abstract

This study investigates the relationship between Management Control Systems (MCS) of Small to Medium Size Enterprise (SME) and how that can sway financing of working capital (short-term) and long-term assets by non-bank sponsors/investors. Based on the World Bank enterprise survey, we examined elements within the data that we classified as key components of management control mechanisms that can affect the effective running of SMEs to attract non-bank financing. We developed six hypotheses to test the vigor of the association of financial report systems and/or subsidiaries status of SMEs and the financing of working capital and/or long-term assets by non-banks. The results of our tests illustrate that generally firms with sound financial systems and/or that are subsidiaries of a parent company entice non-banks sponsors to finance the working capital and long- term assets of SMEs. This study contributes to the financing literature by examining MCS employed by non-banks to extend financing to SMEs.