The Impact of External Funding on SMEs Performance: A Case of SMEs In Lagos State, Nigeria

Abstract

INTRODUCTION: This study attempts to ascertain the practical importance of Transaction Cost Theory by providing a theoretical and empirical backdrop to its applicability in a framework for utilizing external funding and the performance of small and medium enterprises. The academic focus of this study is substantial and sheds light on the strategic positions that SMEs take in the external funding process. It has been found that the principles of Transaction Cost Economics influence the functions.

PURPOSE: A study was conducted to test the effectiveness of the Transaction Cost Economics Theory in a framework for small and medium enterprises to utilize external funding and improve their performance.

METHODOLOGY: A cross-sectional survey of SMEs in the manufacturing sector in Lagos State, Nigeria, was conducted. The study adopted Path Analysis to uncover the impact of external funding on SMEs' performance.

FINDINGS: The empirical results suggest that the availability of external funding for SMEs is informed by the size of SMEs as measured by intangible and tangible resources. The study presents a regulatory framework that affects the ease of doing business. The lack of external funding options is a direct result of this situation.

RECOMMENDATION: The study recommends that policy initiatives support and enable efficiency in the regulatory framework to enhance the ease of doing business and inevitably influence the accessibility of external funding.