The relative importance of regional institutions and external finance for small business investment: evidence from Vietnam

Bach Nguyen

Journal of Institutional Economics, 2020, vol. 16, issue 6, 911-929

Abstract: This study examines the relative importance of local institutions and external finance on small business investment. Utilising the institutional theory, we argue that local institutions and external finance have heterogeneous effects on firm investment. More importantly, they may interact and moderate each other. Analysing a set of 1.3 million observations of small businesses operating in Vietnam (2006–2016) obtained from the Annual Enterprise Survey data from the Vietnam Statistics Office, we find that local institutional settings and external finance are important determinants of firm investment. Moreover, local institutions are able to moderate the effects of external finance on firm investment. As such, this study asserts that conventional models cannot discern whether institutions or external finance are more important to firm investment. Rather, the relative importance of institutions and external finance should be investigated from the perspective of their interaction.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jinsec:v:16:y:2020:i:6:p:911-929_8

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