Formal and Informal Financing Decisions of Small Businesses

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.

Publication DOI: https://doi.org/10.1007/s11187-020-00361-9
Divisions: College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
Additional Information: This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Uncontrolled Keywords: Entrepreneurial finance,Financing strategy,G23,G41,Informal finance,L26,M13,Small business,Vietnam,Business, Management and Accounting(all),Economics and Econometrics
Full Text Link:
Related URLs: https://link.sp ... 187-020-00361-9 (Publisher URL)
http://www.scop ... tnerID=8YFLogxK (Scopus URL)
PURE Output Type: Article
Published Date: 2020-06-11
Published Online Date: 2020-06-11
Accepted Date: 2020-05-15
Authors: Nguyen, Bach (ORCID Profile 0000-0003-1527-7443)
Nguyen, Phuc Canh

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