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Title: The role of management style on the propensity for loan default by small businesses
Authors: Allen-Lle, Charles 
Eresia-Eke, Chuks 
Issue Date: 2008
Publisher: JUTA
Series/Report no.: JBMD;
Abstract: The potential of small businesses to contribute to economic development has been reduced by a cocktail of problems of which inaccessibility to finance in the form of institutional loans is pre-eminent. This problem is linked to lenders’ perception that small businesses are high-risk investments; a perception which is based on an estimation of small businesses’ ability to repay loans. Such estimates are quite often, reliant on financial indicators, which small businesses are not adept at using to signal their performance ability. As a means to redress the situation, recourse to the use of non-financial indicators to complement loan decision techniques of lenders seems imperative. This study investigated the existence of a relationship between management style, an important non-financial variable and a small business’s propensity to default on loans. Generally, the manner in which a business is managed impacts on organisational outcomes. With regard to the outcome of a small business’s propensity to default on loans, therefore, the role of management is expected to be pivotal. The study empirically analysed quantitative and cross-sectional primary data collected from small businesses in the Durban metropolis of South Africa. Results point to the existence of a strong relationship between management style and propensity to default. This identified relationship should complement lenders’ ability to estimate loan default propensity, which should, in turn, ease the problem of inaccessibility to finance.
Description: Article
ISSN: 2070-0156
Appears in Collections:BUS - Journal of Business and Management Dynamics (JBMD)

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