Formal and Informal Financing Decisions of Small Businesses

Bach Nguyen*, Phuc Canh Nguyen

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

This study investigates small businesses’ financing decisions. Drawing upon asymmetric information theory, institutional theory and relevant literature on cognitive financial constraints, human capital and social capital, we propose a theoretical framework in which financing determinants come from three dimensions: entrepreneurs’ individual factors, organisational (firm-level) factors and contextual (institutional) factors. We employ this model to distinguish four types of firms: (1) firms that use no external finance, (2) firms that use informal finance only, (3) firms that use formal finance only and (4) firms that use both formal and informal finance. An empirical test on Vietnamese small businesses shows that factors from all three dimensions are important in understanding small businesses’ financing decisions.
Original languageEnglish
JournalSmall Business Economics
Early online date11 Jun 2020
DOIs
Publication statusE-pub ahead of print - 11 Jun 2020

Bibliographical note

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Keywords

  • Entrepreneurial finance
  • Financing strategy
  • G23
  • G41
  • Informal finance
  • L26
  • M13
  • Small business
  • Vietnam

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