Formal Finance Usage and Innovative SMEs: Evidence from ASEAN Countries

Muhammad Arif, Mudassar Hasan, Ahmed Shafique Joyo, Christopher Gan and Sazali Abidin
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Muhammad Arif: Department of Financial and Business Systems, Lincoln University, 21 Ellesmere Junction Road, Lincoln, Christchurch 7674, New Zealand
Mudassar Hasan: Lahore Business School, The University of Lahore, Lahore 54000, Pakistan
Ahmed Shafique Joyo: Department of Business Administration, Shaheed Benazir Bhutto University, Shaheed, Benazirabad 67450, Pakistan
Christopher Gan: Department of Financial and Business Systems, Lincoln University, 21 Ellesmere Junction Road, Lincoln, Christchurch 7674, New Zealand
Sazali Abidin: Department of Financial and Business Systems, Lincoln University, 21 Ellesmere Junction Road, Lincoln, Christchurch 7674, New Zealand

JRFM, 2020, vol. 13, issue 10, 1-19

Abstract: This paper provides evidence on the likelihood of formal finance usage among innovative small and medium enterprises (SMEs) operating in ASEAN countries. To this end, the SMEs are classified into four categories, namely non-innovators and product, process, and product-and-process innovator SMEs. Subsequently, a propensity score weighting (PSW) analysis is performed to adjust for diversity existing across innovative SMEs. The resulting propensity scores are further used to perform the causal effect analysis based on the average treatment effect (ATE) approach, which measures the likelihood of formal finance usage among different types of innovative SMEs. Our ATE results reveal that SMEs simultaneously engaged in product and process innovation show a higher likelihood of using formal finance than non-innovators. However, formal finance usage of SMEs perusing only product/service or process innovation is not any different from non-innovators. Furthermore, our pairwise analysis shows that product and process innovators also exhibit a higher likelihood of formal finance usage than product/service or process innovators. Besides, younger and medium-size product and process innovating SMEs are more likely to use formal finance. These results are robust for different subsamples and firm- and country-level controls.

Keywords: innovation; small and medium enterprises (SMEs); formal finance; ASEAN countries; propensity score weighting (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
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