Networks and Bank Financing: The Study of SMEs in Vietnam

Abstract

Small and medium-size enterprises (SMEs) play crucial roles in the economy. They generate over 60% employment in many countries and are the key factor for the economic growth. SMEs, however, face constraints to access external finance, which negatively impacts on their business performance and growth. Therefore, a research on SMEs’ ability to access to external finance poses a significant important issue for academic scholars and policy makers. In such emerging countries as Vietnam, bank financing tends to be the most importance financial resources for SMEs. However, the bank employs credit rationing because of asymmetric information between banks and SMEs. Networks may be the most effective channels for SMEs to overcome information asymmetries, thus enabling them to gain access to external financial resources. The objective of this study is to investigate the effects of supporting networks and network diversity on banking financial accessibility of SMEs in Vietnam. Particularly, four types of networks including networking with government officials, bank officials, business associations and network diversity will be examined in depth.Longitudinal data set of more than 1500 manufacturing SMEs in Vietnam from 2007 to 2011, random effect estimator and Stata program will be employed in this research.