Abstract
In many developing countries, obtaining financial services at affordable rates and fair terms has been a significant challenge for small and medium enterprises (SMEs). However, this issue has not been paid much attention in Vietnam, even though SMEs account for about 95% of total enterprises and the financial market of the country has not been well developed. This study investigates the causal effects of access to finance on productivity of SMEs operating in the manufacturing sector in Vietnam. Productivity was measured as the total factor productivity (TFP) obtained by production function estimation using the Levinsohn and Petrin approach. Regarding financial accessibility, two factors covered the extent to which firms might have a bank loan or overdraft facility were employed. To study the causal inferences of access to finance on firm productivity, the research adopted the difference-in-differences (DID) approach, as well as the propensity score matching (PSM) coupled with DID technique. The empirical results indicated that improving the financial accessibility could directly enhance firm productivity. Particularly, it was shown that firms having access to a bank loan could significantly improve TFP by approximately 8.6% in the DID model and about 9% in the PSM-DID model. Meanwhile, the firm average TFP increased by approximately 12.3% and 15.7% in simple DID and PSM-DID models, respectively, when firms had an overdraft facility. These findings suggest that the government should put more effort into assisting SMEs in generating bankable projects, and create a sound and healthy financial environment to stimulate firms’ access to finance, which will ensure their sustainability and growth.
Highlights
Access to finance is associated with the ability of enterprises to obtain financial services [1]
It was showed that the amount of firms that did not have access to Internet in 2013 is higher than that in the following two years (63% and 53.2%, respectively) while the mean values of other variables remained stable over time
As mentioned in the identification strategies, the estimates of the above correlations may lead to the possibility of selection biases, which suggest us to compare the differences in total factor productivity (TFP) of firms that having financial accessibility and firms without
Summary
Access to finance is associated with the ability of enterprises to obtain financial services [1] It is acknowledged as an important factor in promoting firm sustainability and growth through financing both existing and new investment projects. It is argued that firms can finance their operations and growth in many different ways. Both internal and external funds are not perfectly substituted due to a number of reasons, such as transaction costs, tax advantages, agency problems, costs of financial distress, and asymmetric information. Since the capital markets in many developing economies have not been well-developed, firms in these countries, small and medium enterprises, may face significant challenges in obtaining financing and other banking services at affordable rates and fair terms. It is essential to study the impact of financial accessibility on firm growth, and investigate whether or not firms’ access to external finance can improve their performance
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