Local institutions, external finance and investment decisions of small businesses in Vietnam

Bach Nguyen

Economic Systems, 2021, vol. 45, issue 3

Abstract: This study investigates the impacts of local institutions, external finance, and their joint effects on firm investment in Vietnam. Investment decisions are classified into two categories: fixed asset investment and non-fixed asset investment. Analysing a set of 1.3 million firm-year observations of businesses in Vietnam (2006–2016), we find evidence that local institutions (both formal and informal) positively influence fixed asset investment but negatively affect non-fixed asset investment. Also, we find that informal loans are positively associated with both types of firm investment while bank loans are negatively associated with both types of firm investment. More importantly, we find that the quality of local institutions is able to moderate firms’ external financing behaviour, leading to increased investment values.

Keywords: Small business; Investment; Informal finance; Informal institutions; Vietnam (search for similar items in EconPapers)
JEL-codes: D22 M13 P26 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:45:y:2021:i:3:s0939362521000285

DOI: 10.1016/j.ecosys.2021.100880

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