It is argued that networking is crucial for small and medium-sized enterprises (SMEs), particularly in emerging economies as they seek to access resources for development. One key resource in emerging economies is bank financing. In this paper, we develop a model that examines the net effect of different network ties on bank financing to private SMEs. The results support our hypothesis that different network ties influence SMEs' use of bank loans in different ways. Specifically, networking with customers and government officials promotes the use of bank loans, while networking with suppliers and social ties reduces the need for bank loans. This study provides a number of research and managerial implications, which are discussed at the end of the paper.
Private firms in transition economies are operating in an extremely uncertain environment, with underdeveloped market institutions, poorly defined property rights, and absence of reliable business data. This raises a very basic question of how owners of these firms persuade bankers to make much needed loans. This study employs an institutional perspective and argues that firms' legitimacy positively influences their accessibility to bank financing. Specifically, this study develops a model that links networking, professional management practices, and growth stage with bank financing and tests that model using a sample of Vietnamese private firms. The results support the hypotheses that growth stage and networking greatly influence firms' accessibility to bank financing, and that the impact of networking on financing is contingent on the growth stage.
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