Exploring the financing gap for entrepreneurial firms in a developing economy: a case of mismatched expectations?

Abstract

Purpose

This paper investigates the financing preferences and practices of Senegalese entrepreneurial firms, with a particular focus on understanding the gaps between the two and how they may contribute to financing constraints in developing economies. By juxtaposing the preferences of different financing options against their degree of usage, this study attempts to reveal the mismatch in demand and supply of entrepreneurial firms financing in Senegal.

Design/methodology/approach

A structured questionnaire was used to survey 524 entrepreneurial firms, and data was analyzed using various statistical methods.

Findings

The results indicate that the most preferred sources of financing for Senegalese entrepreneurial firms are self-financing and short-term bank loans. Short-term funding horizons are also much more preferred than their long-term counterparts. However, there is a mismatch between financing preferences and practices, particularly with regards to equity sources, which were found to be more preferred than used. The study argues that a combination of preferences, firm, and owner characteristics can explain the choice and frequency of usage of financing sources.

Originality/value

This study contributes to the literature by contrasting preferences and practices, revealing gaps between theory and practice, and providing better insight into the real financing needs of entrepreneurial firms in developing economies. To the authors’ knowledge, this is the first study to examine the financing preferences of Senegalese entrepreneurial firms, making it an important contribution to the literature on entrepreneurial firms financing in developing economies.