Luận văn thạc sĩ UEH determinants affect the access to formal informal credit and its impact on

UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

ERASMUS UNVERSITY ROTTERDAM

INSTITUTE OF SOCIAL STUDIES

THE NETHERLANDS

VIETNAM – THE NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DETERMINANTS AFFECT THE ACCESS TO

FORMAL- INFORMAL FINANCE AND ITS

IMPACT ON SALES GROWTH

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

HOANG QUYNH TRANG

Academic Supervisor:

DR. TRUONG DANG THUY

HO CHI MINH CITY, Nov. 2016

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DECLARATION

I declare that this thesis is entitled “Determinants affect the probability of access to

formal- informal finance and its impact on sales growth” is submitted by me in fulfillment of

the requirements for the degree of Master of Arts in Development Economics to the Vietnam

– The Netherlands Programme (VNP).

This thesis is my original work and under the guidance of my supervision and

acknowledgement has been made in the text to all materials used.

Hoang Quynh Trang

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ACKNOWLEDGMENTS

First of all, from the bottom of my heart, I would like to say thanks to my supervisor, Dr.

Truong Dang Thuy, who always listens to my ideas, discusses and gives me helpful advices

for my thesis. He is also the first teacher who taught me how to process and analyze the data

with econometric tools. Although his time is quite limited, he always reminds and encourages

me to do this thesis harder. Again, I deeply say thanks to Dr. Truong Dang Thuy, without you

it will take very long time to complete my dissertation.

I would like to express my special thanks to Professor Nguyen Trong Hoai, Dr. Pham

Khanh Nam and Dr. Le Van Chon and all lecturers in Viet Nam- Netherland Programme

where I received useful knowledge throughout two years, which will positively support for

my future work.

Finally, I must express my profound attitude to my parents as well as to my better haft for

non-stop encouraging me through the process of doing this research.

This accomplishment could have not been possible if I did not receive extraordinary

support from these people. Thank you.

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ABBREVIATIONS

CIEM Central Institute Economic Management

GDP Gross Domestic Product

GSO General Statistic Office

MPI Ministry of Planning and Investment

IV Instrumental variable

OLS Ordinary Least Square

SMEs Small and Medium Sized Enterprises

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ABSTRACT

Do different sources of finance make different sales growth? In this study, I used a

dataset from Small and Medium sized enterprises (SMEs) in Vietnam in 2013 to explore the

determinants affect the probability of access to formal and informal finance and its impact on

growth rate. By employing bivariate probit model and instrumental variable method to solve

endogeneity problem, this study finds that while formal finance plays significantly positive

role in improving firm performance, informal finance goes on opposite direction on growth

rate. Besides, in term of accessibility to official finance, firm size, receiving government

assistance and good connection with banks have more advantageous than other factors. Social

networks such as network with banks and others also are found significantly positive effect on

the probability of obtaining non-official finance. More interestingly, this study also points out

that young entrepreneurs are more likely to select informal sector to finance their business

operation than the old ones.

Keywords: formal, informal, access to financing, sales growth, Vietnam.

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TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION................................................................................... ..1

1.1 PROBLEM STATEMENT .................................................................................................1

1.2 RESEARCH OBJECTIVE..................................................................................................3

1.3 RESEARCH QUESTIONS.................................................................................................3

1.4 SCOPE OF THE STUDY ...................................................................................................4

1.5 THE STRUCTURE OF STUDY ........................................................................................4

CHAPTER TWO: LITERATURE REVIEW........................................................................ 5

2.1 FIRM’S ACCESS TO FINANCE.......................................................................................5

2.1.1 Theoretical studies........................................................................................................5

2.1.2 Empirical studies..........................................................................................................8

2.2 FINANCING CHOICES AND SALES GROWTH .........................................................14

2.2.1 Theoretical studies......................................................................................................14

2.2.2 Empirical studies........................................................................................................16

CHAPTER THREE: DATA AND METHODOLOGY ...................................................... 23

3.1 DATA................................................................................................................................23

3.2 METHODOLOGY............................................................................................................23

3.2.1 Determinants affect firm’s access to finance..............................................................23

3.2.2 Financing choices and firm’s growth .........................................................................26

CHAPTER FOUR: RESULTS.............................................................................................. 30

4.1 DESCRIPTIVE RESULTS...............................................................................................30

4.2 REGRESSION RESULTS................................................................................................37

CHAPTER FIVE: CONCLUSION AND IMPLICATION ............................................... 51

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5.1 KEY FINDINGS...............................................................................................................51

5.2 POLICY IMPLICATIONS ...............................................................................................52

5.3 LIMITATIONS AND SUGGESTIONS FOR FURTHER STUDY.................................53

5.3.1 Limitations..................................................................................................................53

5.3.2 Suggestions for further research.................................................................................53

REFERENCES........................................................................................................................ 54

APPENDICES...........................................................................................................................58

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LIST OF TABLES

Table 2.1 Summary of theoretical studies ..................................................................................16

Table 3.1 Definition of variables................................................................................................24

Table 3.2 Definition of variables................................................................................................26

Table 4.1 Summary statistics of the sample .............................................................................. 30

Table 4.2 Sales growth by gender and education ....................................................................... 31

Table 4.3 Sales growth by the type of ownership.......................................................................32

Table 4.4 Sales growth by region ...............................................................................................32

Table 4.5 Sales growth by industry ............................................................................................33

Table 4.6 Sales growth by financing choices .............................................................................34

Table 4.7 Sales growth by government assistance .....................................................................35

Table 4.8 Determinants of formal/ informal finance accessibility .............................................37

Table 4.9 How different sources of finance affect sales growth ................................................45

LIST OF FIGURES

Figure 1.1 Framework for capital structure categorization..........................................................3

Figure 2.1 The expected rate of return of lenders........................................................................5

Figure 4.1 The relationship between sales growth and some continuous variables ................... 36

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