Small Business Investment: The Importance of Financing Strategies and Social Networks

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Abstract

This study examines the association between financing strategies and firm investments. Employing theory of financing constraints and literature on formal/informal financing of small businesses to investigate a set of 15,851 observations of Vietnamese small businesses in 11 years, we suggest a pecking order of financing strategies in terms of firm investments, in ascending order as follows: (a) firms using no external finance, (b) firms using informal finance only, (c) firms using both formal and informal finance and (d) firms using formal finance only. In addition, we incorporate the theory of social capital to explore the moderating effect of networking on the relationship between financing and investment. Empirical results show that networks may enhance the relationship between informal finance and firm investments but not formal finance.
Original languageEnglish
JournalInternational Journal of Finance and Economics
Early online date5 Oct 2020
DOIs
Publication statusE-pub ahead of print - 5 Oct 2020

Bibliographical note

© 2020 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

Keywords

  • financing source
  • informal finance
  • investment
  • small business
  • social capital

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