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Tín dụng phi chính thức và hoạt động tài chính của doanh nghiệp vừa và nhỏ ở Việt Nam

Tín dụng phi chính thức và hoạt động tài chính của doanh nghiệp vừa và nhỏ ở Việt Nam
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Bài viết này nghiên cứu về việc sử dụng tín dụng phi chính thức (informal loan) và tác động của nó tới hoạt động tài chính của doanh nghiệp vừa và nhỏ (DNVVN) ở Việt Nam giai đoạn 2011-2015. Tín dụng phi chính thức bao gồm tín dụng mang tính xây dựng (constructive informal loan) và tín dụng đen (underground loan). Mời các bạn cùng tham khảo!

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Tín dụng phi chính thức và hoạt động tài chính của doanh nghiệp vừa và nhỏ ở Việt Nam

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Nội dung Text: Tín dụng phi chính thức và hoạt động tài chính của doanh nghiệp vừa và nhỏ ở Việt Nam

  1. INTERNATIONAL CONFERENCE FOR YOUNG RESEARCHERS IN ECONOMICS & BUSINESS 2020
    ICYREB 2020

    INFORMAL LOAN AND FINANCIAL PERFORMANCE
    OF SMALL AND MEDIUM-SIZED ENTERPRISES IN VIETNAM
    TÍN DỤNG PHI CHÍNH THỨC VÀ HOẠT ĐỘNG TÀI CHÍNH
    CỦA DOANH NGHIỆP VỪA VÀ NHỎ Ở VIỆT NAM

    TS. Đoàn Ngọc Thắng ; ThS. Đỗ Phú Đông
    Biện Thanh Huyền ; Hà Thị Thùy Dung ; Trần Thị Thêu
    Học viện ngân hàng
    dongdp@hvnh.edu.vn

    Abstract
    This paper studies the use of informal loans and its effects on the financial performance of
    Small and Medium-sized Enterprises (SMEs) in Vietnam for the period 2011-2015. The informal
    loan includes constructive and underground loan. Financial performance is measured by return
    on assets (ROA). The empirical results show that informal loan is likely to be used when firms
    face industry competition, have an external audit, and bank loan problem. Using informal credit
    has a positive effect on the business’s financial performance; however, the amount of informal
    loans has a U-inverted relationship with financial performance. The interest rate has a negative
    effect on financial performance, while loan duration plays no role. Among these informal loans,
    the effects of instructive loan are more evident than that of underground one. Our findings have
    practical meanings for the firms to use the informal loan effectively.
    Keywords: informal loan, SMEs, financial performance

    Tóm tắt
    Bài viết này nghiên cứu về việc sử dụng tín dụng phi chính thức (informal loan) và tác
    động của nó tới hoạt động tài chính của doanh nghiệp vừa và nhỏ (DNVVN) ở Việt Nam giai
    đoạn 2011-2015. Tín dụng phi chính thức bao gồm tín dụng mang tính xây dựng (constructive
    informal loan) và tín dụng đen (underground loan). Hoạt động tài chính được đo bằng chỉ số lợi
    nhuận trên tài sản. Kết quả hồi quy cho thấy xác suất của doanh nghiệp sử dụng tín dụng phi
    chính thức tăng lên khi hoạt động trong ngành có cạnh tranh, có kiểm toán bên ngoài, và doanh
    nghiệp gặp khó khăn trong việc vay vốn ngân hàng. Sử dụng tín dụng phi chính thức có tác động
    tích cực tới hoạt động tài chính của doanh nghiệp, tuy nhiên số tiền tín dụng phi chính thức có
    mối quan hệ hình U ngược với hoạt động tài chính của doanh nghiệp. Lãi suất khoản vay này có
    tác động tiêu cực tới hoạt động tài chính trong khi thời hạn vay lại không có ảnh hưởng. Giữa
    hai loại hình tín dụng phi chính thức, tác động của tín dụng mang tính xây dựng đối với hoạt
    động tài chính rõ ràng hơn so với tín dụng đen. Kết quả này có hàm ý quan trọng cho các doanh
    nghiệp trong việc sử dụng tín dụng phi chính thức một cách hiệu quả.
    Từ khóa: tín dụng phi chính thức, doanh nghiệp vừa và nhỏ, hoạt động tài chính

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    1. Introduction
    Small and medium enterprises (SMEs) play an important role in the development of the
    Vietnamese economy. Indeed, the number of SMEs accounts for more than 90% of the total num-
    ber of firms operating in Vietnam. Moreover, the number of workers working in SMEs makes up
    77% of the total Vietnamese labor force. In terms of contribution, SMEs contribute 40% of the
    GDP of Vietnam. However, according to MPDF (1997), credits have been the major obstacle to
    the growth of firms. SMEs face severer ddifficulties than the large ones when getting access to
    formal financing and this is true for the case of Vietnam. The burden of administrative procedure,
    institutional constraints, and collateral requirements force Vietnamese SMEs to approach the in-
    formal financial sources that can provide an easy-to-assess and flexible-payback loan (Archer et
    al., 2020). In Vietnam, the term “informal loan” brings on the negative thoughts because of the
    misunderstanding that it only includes underground credits accompanying with bad images such
    as usury. This paper uncovers the informal loan’s usage, its driving forces of informal loan’s
    usage, and its effect on financial performance of SMEs.
    According to Hsu and Li (2009), an informal loan is a financial activity without banks as
    intermediaries. It includes money borrowed from family and friends, private money houses, and
    other financial associations. Allen et al. (2019) show that informal loan could be categorized into
    constructive and underground informal loan. The former includes trade credits and loans from
    family and friends. This loan is legal because its interest rate is not higher than the interest rate
    ceiling, and therefore, it is controlled by the governments. On the other hand, underground loan
    is coercive. This kind of financing includes pawnshop loans.
    This paper uses the data from the Vietnamese enterprise survey conducted by the Central
    Institute for Economic Management of Vietnam (CIEM) under the funding of the World Bank in
    the period from 2011 to 2015. We apply a Probit method in order to examine the probability of
    using informal loan and the ordinary least square regression to estimate the effects of informal
    loan on the financial performances. The empirical results show that enterprises operating in highly
    competitive sectors with external audits and having difficulties in accessing formal credits from
    banks are expected to have a higher probability of using informal credits. The amount of money
    borrowed from informal financing sources has a U-inverted relationship with the enterprises’ fi-
    nancial performance. Indeed, a small amount of informal loan have positive impacts on financial
    performance but will have adverse influences when the loan level becomes larger. The interest
    rate of informal loans has negative effects on financial performance, but the loan tenor does not
    affect. The impact of the constructive informal loan on financial performance is more explicit
    than that of underground loan.
    We contribute to the literature on informal loan in several ways. First, to the best of our
    knowledge, this is the first study on Vietnam that investigates the use of informal loans and their
    effects on the firms’ financial performance. Second, we are the first to find out a U-inverted re-
    lationship between the amount of money borrowed from informal financing sources and the en-
    terprises’ financial performance. Finally, policy implications arise and are discussed for both
    Vietnamese SMEs and authorities in order to use the informal loans more effectively.

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    This paper is organized as follows. Section 2 reviews the existing strands on related liter-
    ature. Section 3 describes the data used in this study and then specify the model to examine the
    effect of informal loan on financial performance. Section 4 reports the empirical results and dis-
    cusses the main findings of the model. The conclusion is presented in Section 5.
    2. Literature review
    Our paper belongs to three strands of literature. First, there is no consensus to classify for-
    mal and informal financing. Using legal aspect, Tsai (2014) put legal loans into formal financing
    and illegal loans into informal financing. Specifically, Tsai (2014) pointed out that loans, such as
    trade credit, with the interest rate not exceeding the interest rate ceiling of governments are legal.
    On the other hand, the loans with higher interest rates compared to the governments required
    ceiling, such as loan sharks, are classified into the illegal group. However, this classification has
    been criticized as not covering the asymmetric information issue (Allen et al., 2019). Therefore,
    this manner is not sufficient in order to examine the possibility of getting access to informal loans
    of enterprises in developing countries, where asymmetric information is one of the most important
    factors preclude enterprises, particularly SMEs, from accessing to bank loans. The second way
    is to use social ties criteria. Karaivanov and Kessler (2018) stated that formal loans lack social
    ties between lenders and borrowers, in contrast, lenders providing informal loans are expected to
    use social sanctions as means of repayment enforcement. This classification focused on violence
    mechanism and the gap between lenders and borrowers when delinquency occurs. However, this
    kind of classification did not mention the difficulties when getting access the formal and informal
    loans due to lack of information. The classification of Allen et al. (2019) is more adequate as it
    captures both asymmetric information and violence mechanism in case of delinquency.
    The second literature is the determinants of using informal loans of SMEs. Allen et al.
    (2019) concluded that the proportion of SMEs accessing informal loan would decrease if they
    have large assets or use independent auditors. In terms of large assets, Archer et al (2020) stated
    that due to high cost and scarcity of informal loan, big companies tend to search for formal
    loans in order to finance their projects. Enterprises with independent audits will build confi-
    dence for related entities such as investors, employees, and especially for credit institutions or
    lenders. Auditing reports contribute to reducing information asymmetry between borrowers and
    lenders (Hakim and Omri, 2009), making it easier for firms to access formal and informal capital
    (Wignaraja and Jinjarak, 2015) and lower borrowing costs (Kim et al., 2011). Allen et al. (2019)
    also pointed out that as the number of firm competitors increases, SMEs’ likelihood of accessing
    informal loan is expected to increase. Indeed, in a highly competitive environment, firms tend
    to access financial sources with simple modalities without collateral, which is not offered by
    formal loans.
    Zhang (2008) demonstrated that the more years a firm is in operation, the less likely it is
    to use informal loans. This result is consistent with the research of Cuong and Hau (2020), in
    which they proved that older firms access formal loan rather than informal one. However, Le et
    al. (2006) concluded that young firms operating in developing countries are expected to face nu-
    merous difficulties when access bank loans. Thus, they tend to find the informal sources.

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    Rand (2007) concluded that Vietnamese SMEs have many limitations in accessing bank
    capital, so they have to resort to informal credit. Because of the asymmetric information, there
    is a gap between SMEs and formal financial institutions such as banks. Therefore, in developing
    countries like Vietnam, SMEs find difficult when meeting the demands of these institutions
    (Allen et al., 2019). Being consistent with this conclusion, Le, et al. (2006) stated that the tran-
    sition economies like Vietnam, due to ineffective market institutions, SMEs is difficult to get
    access to the formal loans from banks. Moreover, Nguyen and Luu (2013) show that the more
    a business is in business associations, the more likely it is to use informal loan. The cooperation,
    especially in an association, facilitate the repayment (Hoff and Stiglitz, 1994). Moreover, the
    associations allow informal lenders to reach borrowers more easily compared to the formal
    manner (Bose, 1998).
    The third branch consists of studies on the impact of informal credit on SMEs’ financial
    performance. Measuring firms’ financial performance is important because it is built on the effi-
    ciency of capital usage, making different decisions for economic regions. This is a research branch
    that has been exploited in many countries around the world but is still quite limited in Vietnam.
    However, the determination of business performance in each country will have different criteria
    for evaluation. Simultaneously, the distribution of informal credit sources also significantly affects
    the survey results. Mungiru and Njeru (2015) studied SMEs in Kiambu and found out that infor-
    mal financial sources significantly affect firm performance. While commercial credit has a pos-
    itive influence on the financial performance of small and medium enterprises, the usury sources
    have a negative effect on the performance of SMEs. Research by Allen et al. (2019) also shows
    that the effect between constructive informal loan and underground loan is quite different. Su
    and Sun (2011) have shown that commercial and informal loan have a positive effect on the per-
    formance of private firms through ROA. Cuong and Hau (2020) especially examined the rela-
    tionship between informal loan and SMEs firms’ performance by using ROA.
    Cuong and Hau (2020) applied OLS regression to evaluate the linkage between financial
    performance, which was presented by variable ROA, and informal loan. They pointed out that
    firms with high financial performance tend to use formal financial sources rather than informal
    ones. This result is consistent with the finding of Karaivanov and Kressler (2018) that, because
    of the “shadow cost”, informal loan had a negative effect on return of projects. However, when
    studying the Chinese economy, Su and Sun (2011) applied the OLS regression model to demon-
    strate a significant positive effect at 3.5% of informal firm on private firm performance. When
    assessing the performance of the firm based on the dependent variable of ROA (return on assets),
    the results of Su and Sun (2011) also show that, when the business grows in the long term, the
    accessing to informal financial resources will improve the financial performance of the firm.
    Allen et al. (2019) also used the OLS regression model on SMEs in China to assess the firm’s
    business growth and financial estimation when they used informal finance. The results show that
    the use of constructive informal loan results in 8% higher sales growth and remains constructive
    compared to the underground loan.

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    3. Data and model specification
    3.1. Data discussion
    The study draws on the cross-section data obtained from the World Bank survey on SMEs
    operating in Vietnam. The data was collected every two years. In order to ensure the up-to-date
    and objectivity of the data, we used data in 2011, 2013, and 2015. This survey was conducted by
    the Central Institute for Economic Management cooperating with the Institute for Labour and
    Social Affairs, and the Copenhagen university with the support of Danish agency for International
    development and UNU-WIDER. Survey participants were 2.500 small and medium manufactur-
    ing companies operating in 10 cities and provinces of Vietnam, which were Hanoi, Ha Tay (now
    this province is a province of Hanoi), Hai Phong, Phu Tho, Nghe An, Quang Nam, Lam Dong,
    Khanh Hoa, Ho Chi Minh city, and Long An (CIEM, 2007). Selecting sample aims to ensure the
    accurate representation of the development of manufacturing in Vietnam.
    3.2. Model specification
    In order to examine the factors affecting the choosing informal loan, we specify the fol-
    lowing model:
    Informalit = α0 + γi + λt + β1INFORMALit +β2CONTROLit + εit (1)
    Where: i, j, and t denote firm, sector, and year, respectively. INFORMALit is set of dummy
    variables including {. These variables receive a value of 1 if firm i uses informal loan, constructive
    informal loan, and underground loan in year t, respectively. The sector fixed effects , is used to
    reflect the unobservable factors that are specific to the sector, but remain unchanged over time.
    The time fixed effects , is used to reflect macro-economic variables such as transparency and
    quality of information. This variable changes over time and affects all banks. is an error term.
    Control it is a set of explanatory variables. The definitions of these variables are described
    as follows. LnAsset is natural logarithm of firm assets. LnAge is natural logarithm of operation
    time of firms. Cooperative is a dummy variable that is equal to 1 if firm is a member of at least
    one business association, 0 otherwise. Audit is a dummy variable that is equal to 1 if firm has ex-
    ternal audit, and 0 otherwise. Competition is a dummy variable that is equal to 1 if firm has com-
    petitors, and 0 otherwise. Loanproblem is a dummy variable that is equal to 1 if firm has
    difficulties when accessing bank loans, and 0 otherwise
    Figure 1 points out the reasons as to why SMEs in Vietnam choose the informal loan. Ac-
    cording to this figure, the main reason for choosing the informal financial resources is because
    of the flexibility in repayment, with 46.12% of the total votes. The ease of legal proceedings and
    the absences of necessary collateral are third and fourth. Meanwhile, the reason for the inability
    to access loans from banks and preferential interest rates is only about 3.3% of the votes. Finally,
    other reasons accounted for 32.76% of the votes.

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    Figure 1: Reasons for choosing informal loan (percentage %)

    Table 1 presents the statistics of the variables used in the model. It can be seen that more
    than half of the firms in the sample use informal credit, of which underground loan accounts for
    the majority part.
    Table 1: Descriptive statistics of variables

    Variables Observations Mean Std.Err. Min Max

    Informal 5,135 0.54 0.50 0 1
    Constructive 5,135 0.50 0.50 0 1
    Underground 5,135 0.04 0.19 0 1
    ROA 5,135 0.20 0.31 0 1.79
    LnAsset 5,135 7.19 1.69 3.38 10.98
    LnAge 5,135 2.62 0.57 1.10 4.06
    Cooperative 5,135 0.02 0.15 0 1
    Audit 5,135 0.35 0.48 0 1
    Competition 5,133 0.87 0.33 0 1
    LnBankoff 5,135 0.31 0.54 0 2.30
    Loanproblem 5,135 0.09 0.29 0 1
    Interest 5,135 1.00 1.36 0 3
    Amount 5,135 0.06 0.20 0 1.5
    Duration 5,135 4.79 16.19 0 99

    Sources: Data from the calculation of authors

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    4. Estimation results
    4.1. Determinants of informal loan
    Applying the Probit method, we report the estimation results in Table 2.
    Table 2: Estimate the factors affecting the choice of using informal loan

    (1) (2) (3)
    VARIABLES
    Informal Constructive Underground
    LnAsset -0.0152 -0.0163 0.00886
    (0.0134) (0.0133) (0.0243)
    LnAge -0.0962*** -0.0804** -0.0532
    (0.0349) (0.0345) (0.0597)
    Cooperative -0.159 -0.129 -0.0626
    (0.128) (0.128) (0.212)
    Audit 0.265*** 0.208*** 0.205**
    (0.0494) (0.0489) (0.0899)
    Competition 0.236*** 0.181*** 0.318**
    (0.0562) (0.0560) (0.129)
    Loanproblem 0.488*** 0.316*** 0.464***
    (0.0668) (0.0645) (0.0925)
    Constant -0.561* -0.599** -2.199***
    (0.288) (0.293) (0.528)
    Observations 5,118 5,118 4,852
    Pseudo R2 0.0894 0.0766 0.0551

    In parentheses is the standard deviation
    *** p

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    The Cooperative variable is negative means that joining business associations does not af-
    fect a firm’s decision to use both underground loan and constructive loan. This result is not con-
    sistent with the conclusion of Nguyen and Luu (2013). This can be explained by the factthat, as
    mentioned above, the majority of enterprises that are members of many business associations are
    large-scale enterprises, while our sample focuses only on small and medium businesses. In addi-
    tion, Vietnamese firms, especially SMEs, are often lack of acumen or are uninformed about busi-
    ness associations in their fields that leads to the fact that Vietnamese SMEs do not consider the
    impact of participating in business associations when making business decisions. This explanation
    is consistent with the estimation of coefficient of LnAsset variable.
    The positive coefficient of Audit implies that the audits positively influence the choice of
    accessing informal loan of firms. In Vietnam, hiring external auditors to conduct reports is the
    form of financial reporting with the highest level of reliability because it determines the financial
    situation of the business in the most accurate, therefore, the firms outsourcing auditing can use
    the informal loan to offset the financial shortages. Another reason is that due to the use of external
    audits, these firms have more accurate and transparent financial records, and thus have the ability
    to access both informal and bank credit. This study result is consistent with the study of Wignaraja
    and Jinjarak (2015) for China and the group of Southeast Asian countries.
    The estimated results from Table 2 also show that the variable Loanproblem is positive and
    is statistically significant, thus, if firms have difficulties in accessing official capital, the proba-
    bility that the enterprise will access the source informal capital, constructive informal loan and
    underground loan is 48.8%; 31.4% and 46.4%, respectively. The reason for this result is that, ac-
    cording to research by Rand (2007), the three biggest difficulties of SMEs in Vietnam are: “Cap-
    ital, capital and capital”. SMEs in Vietnam have many difficulties in accessing bank loans,
    therefore, they have no choice but to look for informal loans.
    Combining descriptive statistics and regression results of the variables Audit and Loan-
    problem, it can be seen that firms that hire independent auditors have higher access to informal
    capital while having many problems in getting access to formal loans. This can be explained by
    the fact that in transition countries like Vietnam, banks make lending decisions based on informal
    sources of information obtained from informal relations networks. Meanwhile, official sources
    of information such as audit reports only play an additional role in assessing the legitimacy of a
    loan (Le et al., 2006).
    The Competition variable is positive and is statistically significant. Thus the Competition
    variable is proportional to the probability of selecting informal credit, which is consistent with
    the previous analysis. The model shows that when a firm reports to have a competitor in the
    industry, the probability that the firm uses informal loan increases by 23.6% and uses underground
    credit to 31.8%. This result is consistent with the conclusion of Allen et al (2019).
    4.2. Effects of informal loan on financial performances
    To find out the relationship between the informal loan and firm performances, we carry
    out the linear regression (OLS) as described in the model. We use ROA as a proxy for financial
    performance. In equation (2), we regress ROA on Informal variables and a set of Control variables.
    We conjecture that the ROA is related to the financial methods of SMEs including various
    informal financing modalities which consist of the operation time, asset size, being cooperative

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    firm, hiring external audits, the number of bankers with whom they have a relationship, being a
    member of a business association, the number of competitors, difficulties in accessing capital,
    interest rates, loan value and loan term of SMEs in Vietnam. The variables are detailed in the
    model (2) and (3) below, in which model (2) is the result of ROA regression according to the ex-
    planatory variables as in model (1), and model (3) adding other control variables.
    ROAit = α0 + γi + λi + β1INFORMALit + βi2CONTROLit + εit (2)
    ROAit = αi0 +γi + λt + β1INFORMALit + β2CONTROLit + β3lnBankoffit +
    β4Interestit + β5Amountit +β6Amountit2 + β7Durationit + εit (3)
    When: (return on assets) is the dependent variable, reflecting the financial performance
    of firm i in year t, lnBankoffit is the natural logarithm of the number of relationships with bank
    staff of firm i in year t, Interestit, Amountit and Durationit are the interest rate, amount and
    term of the informal loan of firm i in year t, respectively, Amountit2 is the square of the variable
    Amountit.
    Table 3: Effect of informal loan on financial performance
    Panel A: Benchmark result
    VARIABLES (1) (1) (1)
    ROA ROA ROA
    LnAsset -0.0886*** -0.0886*** -0.0888***
    (0.00380) (0.00380) (0.00380)
    LnAge -0.0395*** -0.0397*** -0.0406***
    (0.00833) (0.00832) (0.00838)
    Cooperative -0.0200 -0.0203 -0.0213
    (0.0253) (0.0254) (0.0256)
    Audit 0.140*** 0.141*** 0.143***
    (0.0106) (0.0106) (0.0106)
    Competition 0.0105 0.0111 0.0129
    (0.0119) (0.0119) (0.0119)
    Loanproblem 0.0161 0.0177 0.0207
    (0.0138) (0.0139) (0.0137)
    Informal 0.0289***
    (0.00871)
    Constructive 0.0279***
    (0.00847)
    Underground 0.000196
    (0.0172)
    Constant 0.857*** 0.858*** 0.866***
    (0.0595) (0.0593) (0.0593)
    Observations 5,120 5,120 5,120
    Number of id 1,718 1,718 1,718

    In parentheses is the standard deviation
    *** p

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    Panel B: Estimation results with other control variables

    VARIABLES (1) (2) (3)
    ROA ROA ROA
    LnAsset -0.0918*** -0.0918*** -0.0921***
    (0.00388) (0.00388) (0.00387)
    LnAge -0.0383*** -0.0382*** -0.0386***
    (0.00836) (0.00834) (0.00837)
    Cooperative -0.0228 -0.0227 -0.0237
    (0.0259) (0.0259) (0.0261)
    Audit 0.132*** 0.131*** 0.132***
    (0.0105) (0.0105) (0.0105)
    Competition 0.0101 0.01000 0.0114
    (0.0120) (0.0119) (0.0119)
    Loanproblem 0.00993 0.00995 0.0122
    (0.0136) (0.0137) (0.0136)
    LnBankoff 0.0315*** 0.0315*** 0.0347***
    (0.00740) (0.00729) (0.00726)
    Interest -0.0200*** -0.0194*** -0.0205***
    (0.00554) (0.00551) (0.00545)
    Amount 0.107*** 0.109*** 0.115***
    (0.0220) (0.0222) (0.0226)
    Amount2 -0.000487*** -0.000499*** -0.000511***
    (0.000101) (0.000103) (0.000102)
    Duration 8.93e-05 9.01e-05 0.000161
    (0.000269) (0.000266) (0.000265)
    Informal 0.0115
    (0.00915)
    Constructive 0.0155*
    (0.00868)
    Underground -0.0279
    (0.0171)
    Constant 0.921*** 0.918*** 0.926***
    (0.0617) (0.0615) (0.0611)
    Observations 5,120 5,120 5,120
    Number of id 1,718 1,718 1,718

    In parentheses is the standard deviation
    *** p

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    The regression results of the model (3) are presented in Panel A of Table 3. The coefficient
    of Informal implies positive effects on ROA with the value at 0.0289 and is statistically significant
    at 1%. In which, Constructive has a positive impact on the financial performance of the business
    while Underground is not statistically significant. Constructive (0.0279) is positive which means
    that if firms increase the use of constructive informal loan, their performances tend to increase.
    This result is consistent with the study of Su and Sun (2011) and Allen et al. (2019). This is ex-
    plained by the fact that constructive informal loan is loans from relatives, friends, social rela-
    tionships with very low or without interest rates, and there are no complicated procedures, or,
    the repayment deadline is not constrained, thus, firms can mobilize money quickly, and the re-
    payment period is not a concern. Moreover, these are loans that are under the control of the gov-
    ernment, so unethical activities such as violence, raising interest rates exceed a high level,
    shortening the repayment period, … are unlikely to happen. Meanwhile, the proportion of using
    underground loan in our sample is quite small, only about 4%, so the underground loan’s role
    may not be large enough to affect the performance of the SMEs. However, the results relating to
    informal loan is not consistent with the study of Cuong and Hau (2020) on informal loan in Viet-
    nam. Indeed, Cuong and Hau (2020) investigated on projects of both institutions and individuals.
    That is reason why they concluded that informal loan brings on the negative effect on the return
    of the projects.
    LnAsset and LnAge are negative and statistically significant. These variables are inversely
    proportional to the firm’s performance, which is completely consistent with Rand (2007). In par-
    ticular, when the assets of the business increase by 1%, the use of informal loan will reduce the
    efficiency of operations by about 9%. Similarly, the ROA of an enterprise will be reduced by 4%
    if the business has more years of operation. The coefficients of the variables LnAsset and LnAge
    were substantially consistent with the theory. Audit variable is positive with a statistical signifi-
    cance of 1%. The meaning of the above results is that when firms access informal loan with out-
    sourced accounting, their performance will increase. The reason is that hiring an external
    accountant will help firms to control their finances more closely. The efficient use of informal
    loan and combining with external accounting will help firms to save time, money, and be more
    flexible with cash flow. Meanwhile, Cooperative, Competition, and Loanproblem will not affect
    the firm’s performance.
    In Panel B of Table 3, variables related to the use of informal loan are added as control
    variables. The interest rate on informal loan, Interest, negatively affects ROA. Particularly, when
    interest rates increase to 1%, ROA decreases by 2%. The negative effect of underground credit
    on ROA is higher than on constructive informal credit. According to Rand (2007), informal loan
    typically does not require collateral, but interest rates range from 0% up to 6% per month. This
    corresponds to the findings of McMillan and Woodruff (1999) when interest rates paid by private
    producers in the informal credit market in Vietnam are up to 4-7% per month. The increase in
    interest rates will reduce the profits that businesses earn. Therefore, firms will have difficulties
    in not having enough capital to improve their business operations as well as reinvest in new
    profitable projects. Thus, operational efficiency will not be enhanced.

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    Amount positively affects the financial performance of the firms at 10.9% when they use
    constructive informal loan and at 11.5% when they borrow an additional VND 1 billion in un-
    derground credit. This means that when businesses increase their loan value, their ROA also in-
    creases. However, when the loan value becomes too large, it harms the financial performance of
    the business, as shown by the coefficient of Amount2 is negative and statistically significant at
    1%. This is because a moderate informal credit will have a positive effect on solving liquidity
    problems and financing day-to-day business operations. However, when the value of this loan is
    too large, the pressure to pay interest and principal is burdened on the business, making the firms
    less efficient.
    Duration does not affect the firm’s performance because the estimation coefficient of this
    factor is not statistically significant (p>0.1). This result is contrary to the study of Nderitu and
    Githinji (2015). This can be explained by the fact that the informal loan is mainly based on re-
    lationships, there is no contract to extend the payment period, so the loan period can be more
    flexible than original payment commitments. LnBankoff positively affects business perform-
    ance. As the company has more relationships with bank staff, the firm can access formal loans
    and reduce access to informal finance. This result is consistent with findings from the United
    States (Berger and Udell, 1995; Uzzi, 1999) that when firms have a longer banking relationship,
    they can borrow at lower interest rates. That means the risk will be reduced, the operational ef-
    ficiency will increase.
    4.3. Endogeneity problem
    Up to now, we ignore the potential bias caused by the endogeneity of informal loan. A weak
    financial performance may prevent firms from borrowing from banks as the banks depreciate the
    firms that have bad financial reports. In this case, if the firms still need external finance, they
    only use the informal channel. To mitigate the estimation bias, we apply the instrumental variable.
    We construct a variable Flexible that takes a value of one if a firm answer that flexible payback
    is a reason why firm use informal loan and zero otherwise. This variable is expected to have a
    strong correlation with the use of informal loan (Archer et al., 2020). In our data sample, 46% of
    firm chooses this reason. To the best of our knowledge, we find no consensus about the relation-
    ship between flexible payback and financial performance. Hence, our instrumental variable is
    valid. We report the IV regression in Table 4. The results show that when controlling the endo-
    geneity problem, the effects of Informal and Constructive become pronounced.

    Table 4: IV regression

    VARIABLES (1) (2)
    ROA ROA
    LnAsset -0.0884*** -0.0883***

    (0.00380) (0.00380)

    LnAge -0.0379*** -0.0382***

    (0.00829) (0.00829)

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    Cooperative -0.0181 -0.0184
    (0.0250) (0.0251)
    Audit 0.136*** 0.137***
    (0.0108) (0.0107)
    Competition 0.00713 0.00811
    (0.0122) (0.0121)
    Loanproblem 0.00916 0.0126
    (0.0144) (0.0142)
    Informal 0.0723***
    (0.0213)
    Constructive 0.0750***
    (0.0221)
    Constant 0.842*** 0.843***
    (0.0601) (0.0599)
    Observations 5,120 5,120
    Number of id 1,718 1,718
    R2 0.240 0.239
    Wald test p-value 0.000 0.000

    In parentheses is the solid standard deviation
    *** p

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    Based on the above analysis results, to increase operational efficiency for SMEs, we suggest
    some practical policies as follows. The government needs to lay down a strict fiscal mechanism,
    take detailed steps to regulate informal finance in order to promote positive aspects such as in-
    creasing the use of constructive informal loan, play a supporting role, avoiding destabilization
    and establishing multifaceted funding to meet the necessary needs that helps to develop the SMEs.
    Additionally, the Vietnamese authorities need to play an important role in controlling underground
    loans. For examples, the government is advisable to review the operation of potential underground
    sources like pawnshops in order to manage successfully interest rates and payback method. Free-
    man and Le (2007) have pointed out that rental, subscription and credit guarantee funds are often
    not known as the usual and effective channels to raise funds for SMEs due to their mechanisms
    are not suitable. Therefore, banks should develop new financial services or tailored credit products
    for SMEs, linking the provision of credit to technical advisory, financial advisory or managing
    loan services to businesses / customers to improve loan efficiency. Disseminate supporting serv-
    ices to support SMEs such as factoring, credit guarantees, rental funds, etc., simultaneously,
    SMEs should actively improve their understanding of trade finance methods, limit maximum use
    of underground loan. Last but not least, according to Cuong and Hau (2020), innovations play an
    important role in reducing accessing informal loan of SMEs. Therefore, governmental support
    to facilitate innovation of SMEs should be considered by authorities.
    Due to research limitation, this paper did not examine fully the endogeneity between in-
    formal and formal loans in the Vietnamese market. Therefore, evaluating endogeneity is a sug-
    gested research in the future. Additionally, although governments play an important role in laying
    down regulations on accessing informal and formal loans, this study did not cover this issue.
    Thus, future research on informal loans in Vietnam should focus on the policy regulations.

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