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The relationship between financial constraint and SMEs total factor productivity

By Ho Bao Tran (VNP 19)

Supervisor: Dr. Nguyen Trong Hoai

Abstract

Using panel data from Vietnamese Small and Medium Enterprises Survey from 2004 to 2010, this study aims to examine the relationship between financial constraint and firm total factor productivity of small and medium enterprises (SMEs) in Vietnam. To achieve this objective, this study measures the total factor productivity of the SMEs. Then, this study identifies the relationship between financial constraint and total factor productivity of SMEs. Levinson-Petrin approach is used in order to calculate the total factor productivity of firm in the first step. In the second step, an estimation model is built to examine the linkage between financial constraint and firm total factor productivity. The research finds that there is relationship between financial constraint and firm productivity. For example, the relationship between firm leverage and total factor productivity of firm is positive. It means that access to large external finance can help a firm ease the degree of credit constraints, thereby increasing its capacity and survival in the market. Secondly, liquidity ratio does not have significant impact on firm productivity in Vietnam. Thirdly, firm size and firm age have positive relationship with firm productivity. In other word, firms with larger size and older will have higher productivity. Finally, firms join in export activities are found to get higher productivity than the others.

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