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The lasting effect of formalization on credit access: Evidence from Vietnamese private SMEs

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  • Truong, Thao Duc
  • Bui, Phuong Cam

Abstract

This study adds to the literature by evaluating for the first time not only the short-term but also the long-term effects of formalization on loan access for small and medium-sized enterprises (SMEs) in Vietnam between 2005 and 2015. We find that businesses that formalize their status have a better chance of obtaining a formal loan, but the benefits of formalization are only apparent in the short term and not in the long run (five, seven or more years). Also, our study indicates that promoting formalization and loan availability for private SMEs in Vietnam requires encouraging the adoption of accurate financial records, accounting books, and anti-corruption measures.

Suggested Citation

  • Truong, Thao Duc & Bui, Phuong Cam, 2022. "The lasting effect of formalization on credit access: Evidence from Vietnamese private SMEs," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000526
    DOI: 10.1016/j.frl.2022.102729
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    More about this item

    Keywords

    Formalization; Credit access; Heckman and Instrumental variable; SMEs;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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