Assessing the Empirical Linkage Among Access to Finance, Firm Quality, and Firm Performance: New Insight From Bangladeshi SMEs’

Abstract

Access to finance plays a central pillar on the sustainable firm growth of developing and developed nations. This study depicts the linkage between access to external finance, firm quality, and firms’ performance as measured by labor productivity for sustainable small- and medium-sized enterprises (SMEs’) development by employing the ordinary least squares (OLS) regression and propensity score matching (PSM) techniques to alleviate the selection bias and endogeneity issue on Word bank enterprise survey (WBES) cross-sectional firm-level data of 3,196 Bangladeshi SMEs for 2007–2013 period. Empirical evidence linking access to external finance and labor productivity has been positive and significant. However, our finding explores a negative but significant relationship between exports and SME labor productivity. A further look into the results also exhibits no statistical significance in the interaction effect between firm quality and access to finance on labor productivity. Moreover, the study anticipates novel empirical support that, the disintegration effect of export sales between direct and indirect exports with labor productivity for credit-accessed firms, is also found statistically insignificant. Then, several policies are drawn from the results to gain international competitiveness, and to ensure more external finance channels for enhancing SMEs’ performance and sustainable firm growth.

Does Entrepreneurial Financial Support Guarantee New Ventures’ Performance via Competitive Advantage and Innovation? Empirical Answers from Ho Chi Minh City Region, Vietnam

“…Regarding the positive influence of FIN on the BOP of new ventures, our results were in line with extant investigations that claimed that FIN helps firms to achieve overall growth and long-term survival [95][96][97][98][99], having positive impacts on their BOP [14,76]. In addition, by demonstrating the positive effect of FIN on the BOP of new ventures in Vietnam, this research favored the conclusions of Chowdhury et al [12], Boermans and Willebrands [100], and Ferrando and Ruggieri [101] who suggested that FIN has a positive impact on the labor productivity and organizational productivity of new ventures in developing countries. Our results demonstrated that FIN had the strongest direct effect on INO in our model, which was in line with extant research [42][43][44] claiming that FIN positively stimulates the INO of SMEs by enhancing investment in products and processes and mobilizing finance to facilitate firms' patenting activity.…”

“…Moreover, firms' access to finance significantly stimulates various facets of BOP including overall growth [95,96], accomplishment of growth and investment opportunities [97], long-term survival of SMEs [98], and the acknowledgement of sustainability challenges [99]. Access to external finance positively influences the BOP, represented by the productivity of labor and organization, of SMEs in both developing and developed nations because financial constraints hinder productivity and represent vital obstacles to efficient entrepreneurial activities [12,100,101]. FIN from governments stimulates organizations by improving their BOP and enlarging their business to achieve higher return on equity, return on assets, and market growth [92].…”

“…In addition to that, the percentage of successful startups was 5 percent, while startups that experienced losses accounted for 37 percent [11]. These pessimistic consequences can be traced back to the negative circumstance of external resources, FIN [6,9,[12][13][14], and internal resources, INO [15][16][17]. To overcome these issues, enterprises consider the competitive advantages of sustainability in business and apply innovation that is the core of sustainable value creation of new ventures [7,[18][19][20][21][22].…”

“…According to the resource-based view (RBV) theory, the sustainable FCA and firm performance of an organization are dependent on the organizational possession of both external and internal resources and capabilities that are valuable, rare, inimitable, and non-substitutable [40,41]. Previous studies on FIN focused on external resources that significantly and positively contribute to FiPer and BOP across countries [6,9,[12][13][14]. Due to the COVID-19 pandemic, the availability and adequacy of FIN are essential external resources for new ventures in achieving a better competitive position in the market and enhance firm performance [6].…”

“…Because of issues related to the COVID-19 pandemic, enterprises interacted with their environment through online channels to access financial resources and become proactive in their operations to increase their BOP [13]. Following the ease of COVID-19 infection, FIN also stimulated the labor productivity and organizational productivity of new ventures in the early stage of economic recovery [12]. In addition to that, by using FIN, new ventures can develop their INO through enhancing investment in products and processes and mobilizing finance to facilitate firms' patenting activity [42][43][44].…”