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The relative importance of regional institutions and external finance for small business investment: evidence from Vietnam

Published online by Cambridge University Press:  06 May 2020

Bach Nguyen Open the ORCID record for Bach Nguyen [Opens in a new window]
Bach Nguyen*
Affiliation:
Aston University, Aston Business School, BirminghamB47ET, UK
*
Corresponding author. Email: [email protected]
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Abstract

This study examines the relative importance of local institutions and external finance on small business investment. Utilising the institutional theory, we argue that local institutions and external finance have heterogeneous effects on firm investment. More importantly, they may interact and moderate each other. Analysing a set of 1.3 million observations of small businesses operating in Vietnam (2006–2016) obtained from the Annual Enterprise Survey data from the Vietnam Statistics Office, we find that local institutional settings and external finance are important determinants of firm investment. Moreover, local institutions are able to moderate the effects of external finance on firm investment. As such, this study asserts that conventional models cannot discern whether institutions or external finance are more important to firm investment. Rather, the relative importance of institutions and external finance should be investigated from the perspective of their interaction.

Keywords

Local governmentinformal loansinstitutional settingsinvestmentVietnam

JEL classification

D22: Firm Behavior: Empirical Analysis P26: Political Economy • Property Rights M13: New Firms • Startups
Type
Research Article
Information
Journal of Institutional Economics , Volume 16 , Issue 6 , December 2020 , pp. 911 - 929
Copyright
Copyright © Millennium Economics Ltd 2020

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