Credit Choices and its Effect on Firm Growth: The Case of Smes in Vietnam

28 Pages Posted: 24 Jun 2022

See all articles by Thuy Linh Duong

Thuy Linh Duong

Central University of Finance and Economics

Rui Chen

Central University of Finance and Economics (CUFE)

Abstract

This study examines the financing choices and its impact on firm growth of different types of small and medium enterprises (SMEs) in Vietnam. Each type of external finance has its pros and cons to borrowing enterprises. Informal finance has an informational advantage, while formal finance is scalable in supply. Using a detailed and unique dataset of Small and Medium enterprises in Vietnam, the study shows that informal finance plays a vital role in SMEs' growth. Furthermore, informal finance is associated with higher sales growth of household businesses. In contrast, the complementary effect of both formal and informal financing sources contributes to the development of non-household enterprises. The study also suggests to policymakers in emerging countries like Vietnam that the government should consider promoting formal and informal finance properly instead of compressing the latter.

Keywords: formal finance, informal finance, financing choice, credit choice, firm growth, Vietnam.

Suggested Citation

Duong, Thuy Linh and Chen, Rui, Credit Choices and its Effect on Firm Growth: The Case of Smes in Vietnam. Available at SSRN: https://ssrn.com/abstract=4145358 or http://dx.doi.org/10.2139/ssrn.4145358

Thuy Linh Duong (Contact Author)

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

Rui Chen

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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