The impact of debt diversification on the performance of SMEs in Vietnam

Abstract

This article aims at evaluating the impact of debt diversification on the performance of SMEs in Vietnam. The COVID-19 pandemic has severely affected the operation results of SMEs which are looking for solutions to be able to maintain sustainable production and business activities as soon as the pandemic is under control. One of the most sought-after urgent working solutions today that SMEs are resorting to is funding from loans in various forms to avoid short-term liquidity risks. Using estimation from panel data, empirical results show that multiple lenders measured by the number of debt sources and the dispersion of debt has a negative impact on the performance of SMEs. The results imply that increase of agency costs resulting from inferior monitoring may decrease the performance of firms. Our findings contribute to the sparse literature on debt diversification of SMEs in a developing country like Vietnam.