Cognitive financial constraints and firm growth

Abstract

This study distinguishes entrepreneurs’ cognitive financial constraints from financial supply constraints and assesses their relative importance to small business growth. Drawing from the literature on cognitive styles and institutional theory, we argue that small businesses’ financial constraints derive not only from financial market failures but also from the cognitive factors of entrepreneurs. Analysing a comprehensive dataset of more than 200,000 small businesses in Vietnam, we show that both financial supply and cognitive financial constraints impede firm growth. Given this significantly deleterious effect, the cognitive financial constraints originating from the demand side of firm financing deserve more attention.

Cognitive factors in discouraged borrowers: how entrepreneur's perception affects borrowing discouragement

“…In this case, the authors analyze the relationship between three cognitive factors with borrowing discouragement. Thus, the research contributes to entrepreneurial finance literature by checking factors that associate with SMEs' access to credit and that potentially inhibit the growth of SMEs (Canton et al, 2013;Du and Nguyen, 2021;Jabbari et al, 2022). Second, the evidence obtained in this study should guide future research on a firm's access to credit.…”

“…Different from bank screening errors that erroneously cause credit rationing to viable firms, many firms do not even apply for bank credit as they perceive low chances of obtaining credit. This point is particularly concerning as most attention to credit constraints is given to the supply side of the credit market without extending the analysis to issues associated with the demand side of the credit market (Du and Nguyen, 2021). Discouragement shows the existence of the "latent demand" (Freel et al, 2012) for bank credit that is unobserved in the rejection rate.…”

“…Recently, a new stream of research started to investigate issues related to information asymmetries on the demand side of the credit market (Du and Nguyen, 2021;Fraser, 2019). Scholars noticed that, in many cases, entrepreneurs need external funds but do not ask for them because they feel discouraged (Chakravarty and Xiang, 2013;Fraser, 2019;Freel et al, 2012;Gama et al, 2017;Kon and Storey, 2003;Mac an Bhaird et al, 2016;Neville et al, 2018;Rostamkalaei, 2017;Rostamkalaei et al, 2020).…”

“…Thus, the research contributes to entrepreneurial finance literature by checking factors that associate with SMEs' access to credit and that potentially inhibit the growth of SMEs (Canton et al. , 2013; Du and Nguyen, 2021; Jabbari et al. , 2022).…”

The Influence of Financing Constraints on Enterprises' Export Trade Patterns

“…When exporting, compared to other general trade, they also do not need to pay VAT to customs. In this case, domestic enterprises only need to complete the processing of imported raw materials and export the finished products at the price set with the other party before processing [3]. Processing trade also covers other trade modes, that is, the so-called processing with supplied materials [4].…”