1 Introduction
2 Literature and hypotheses
2.1 Cognitive financial constraints
2.1.1 Cognitive styles and entrepreneurship
2.1.2 Cognitive financial constraints and firm growth
-
Hypothesis H1: Firms that are financially unconstrained (i.e. borrowing and satisfied with bank loans) achieve higher growth than firms experiencing cognitive financial constraints (i.e. do not want to obtain bank loans).
-
Hypothesis H2: Firms that are financially constrained (i.e. borrowing from banks and are not satisfied) achieve higher growth than firms experiencing cognitive financial constraints (i.e. do not want to obtain bank loans).
-
Hypothesis H3: Firms that are not cognitively financially constrained (i.e. have an intention to take out bank loans), even where they have not yet made an application, achieve higher growth than firms that are cognitively financially constrained (i.e. do not want to obtain bank loans).
2.2 The relative importance of cognitive financial constraints
2.2.1 Financial supply constraints
2.2.2 Financial supply constraints vs cognitive financial constraints
Cognitive financial constraints | Financial supply constraints | |
---|---|---|
Theory applied | • Institutional theory, psychology, entrepreneurship, and management science | • Theory of financial constraints |
Definition | • The situation in which entrepreneurs do not want to take out bank loans | • The situation in which firms do not obtain sufficient bank loans |
Origins of the constraints | • Biased cognitions and perceptions of individuals concerning entrepreneurship • Demand side of the financial market | • Frictions from the debt markets including market failures leading to the funding gap • Supply side of the financial market |
Alternative solutions to overcome the constraints | • No alternative solutions | • Other informal financing sources, e.g. friends and family who could, to some extent, substitute for bank loans, enabling potential growth |
Benefits of alleviating the constraints | • The financial effects of starting borrowing: more investment leading to higher growth • The non-financial effects of improved productivity, innovation, and entrepreneurial proactiveness leading to higher growth | • The financial effects of more borrowing: more investment leading to higher growth |
Consequence of persistent constraints | • Impede growth | • Reduce growth rate |
Length of the effects | • Long-term (may be concerned with changing norms, beliefs, and values) | • Short and medium terms (concerned with changing regulations) |
The relative importance | • Necessity condition for growth | • Sufficient condition for growth |
Practical methods to eliminate the constraints | • Enhance entrepreneurial education • Improve local government quality, boost levels of trusts in government | • Liberalise the banking system • Organise financial subsidies for small businesses |
-
Hypothesis H4: Cognitive financial constraints have a stronger growth-binding effect on small businesses than financial supply constraints have.
3 Data and method
3.1 Data
3.2 Models
3.3 Variables and summary statistics
3.3.1 Dependent variables
Variable | Definition | Total sample | Intention | Dissatisfied | Satisfied | Lower No need |
---|---|---|---|---|---|---|
Revenue growth | Percentage of net revenue growth in two consecutive years | 0.032 | 0.067***a | 0.068***a | 0.064***a | − 0.048 |
Asset growth | Percentage of fixed asset growth in two consecutive years | 0.021 | 0.114***a | 0.011***a | 0.031***a | − 0.013 |
Intention | Takes value 1 if a firm has an intention to take out bank loans, 0 if it does not want to borrow (No need group), missing otherwise | 0.257 | 1 | |||
Dissatisfied | Takes value 1 a firm takes out bank loans and is dissatisfied (needs more loans), 0 if it does not want to borrow (No need group), missing otherwise | 0.467 | 1 | |||
Satisfied | Takes value 1 if a firm takes out bank loans and is satisfied, 0 if it does not want to borrow (No need group), missing otherwise | 0.533 | 1 | |||
Owner age | Entrepreneur age | 43.469 | 43.036***a | 44.064***a | 44.395***a | 41.355 |
Owner gender | Takes value 1 if male, 0 female | 0.746 | 0.740***a | 0.773***a | 0.745***a | 0.713 |
Owner education | Takes value 1 no degrees, 2 junior technical degrees, 3 senior technical degrees, 4 professional vocational degrees, 5 college degrees, 6 bachelors, 7 masters, 8 doctoral level | 4.705 | 4.659 | 4.614a | 4.684**b | 4.654 |
Firm age | Firm age since establishment | 7.481 | 7.865***a | 7.765***a | 7.879***a | 6.584 |
Firm size | Natural log of the number of employees (report here the number) | 39.541 | 37.516***a | 41.134***a | 41.996***a | 28.356 |
Profitability | The ratio of profit over firm total assets | 0.009 | 0.004***a | 0.007***a | 0.016***a | − 0.032 |
Asset structure | The ratio of fixed assets over firm total assets | 0.234 | 0.211***a | 0.267***a | 0.271***a | 0.150 |
Debt structure | The ratio of liabilities over firm total capital | 0.491 | 0.469***a | 0.532***a | 0.546***a | 0.398 |
Investment | The ratio of new investments over firm total capital | 0.225 | 0.222***a | 0.199***a | 0.192***a | 0.299 |
Web | Takes value 1 if a firm has a company website, 0 if no website | 0.193 | 0.255 | 0.174 | 0.207 | 0.179 |
eBuy | The values of purchasing using an e-commerce platform as a ratio of total revenue | 0.016 | 0.026 | 0.180 | 0.017 | 0.011 |
eSell | The sale values of products and services using an e-commerce platform as a ratio of total revenue | 0.033 | 0.050 | 0.034 | 0.033 | 0.026 |
eCommerce | Takes value 1 if firms have other activities (on top of buying and selling) based on e-commerce platforms, 0 otherwise | 0.016 | 0.026 | 0.017 | 0.017 | 0.012 |
Provincial constructions | Provincial construction value per capita, in million VND | 8.730 | 9.796***a | 8.255***a | 7.774***a | 10.039 |
Provincial consumptions | Provincial consumption value per capita, in million VND | 25.567 | 29.692***a | 22.798***a | 22.695***a | 31.702 |
Distance | Distance from a province to the closest economic centre, in km | 94.365 | 69.326***a | 111.021***a | 116.332***a | 60.214 |
Cumulative FDI | Cumulative FDI value per capita, in billion VND | 0.671 | 0.764***a | 0.580***a | 0.600***a | 0.827 |
SOE capital | SOEs’ registered capital value per capita, in billion VND | 0.080 | 0.089***a | 0.074***a | 0.064***a | 0.087 |
Local governance quality | Provincial Competitiveness Index, 0 is the worst governance quality, and 100 is the best | 60.978 | 61.391*a | 60.552***a | 60.687***a | 61.670 |
Observations | 204,135 | 21,036 | 53,224 | 69,186 | 60,689 |
3.3.2 Independent variables
-
Satisfied: Respondents in the financing survey indicated that they took out bank loans and were satisfied with the values of loans they obtained. Satisfied variable takes value 1 for firms that are satisfied (treatment 1) and value 0 for firms that do not want to borrow (control).
-
Dissatisfied: Respondents in the financing survey indicated that they obtained bank loans but were dissatisfied with the amounts they obtained (i.e. they need bigger loans). Dissatisfied variable takes value 1 for firms that are dissatisfied (treatment 2) and value 0 for firms that do not want to borrow (control).
-
Intention: Respondents indicated that they wanted to apply for bank loans but did not do so for one or more of the following reasons: insufficient collateral, do not fully understand the banking procedures, understand the procedures but feel that they are time-consuming, or think that the interest rate is currently unaffordable. Intention variable takes value 1 for firms that have not applied for bank loans but want to do so (treatment 3) and value 0 for firms that do not want to borrow (control).
3.3.3 Control variables
3.4 Estimation and econometric issues
3.4.1 Selection bias
3.4.2 Estimation
4 Results
4.1 Precedents of cognitive financial constraints
Multinomial logit | Logit | Logit | |||
---|---|---|---|---|---|
(1) | (2) | (3) | (4) | (5) | |
Intention | Dissatisfied | Satisfied | Lower No need vs Intention | Lower No need vs the rest | |
Owner age | 1.042 | 1.564*** | 1.335*** | 1.044 | 1.352*** |
(0.132) | (0.164) | (0.128) | (0.133) | (0.116) | |
Owner gender | 1.152*** | 1.250*** | 1.050 | 1.140*** | 1.132*** |
(0.049) | (0.042) | (0.033) | (0.049) | (0.032) | |
Education | 1.010 | 1.066*** | 1.053*** | 1.016 | 1.051*** |
(0.010) | (0.008) | (0.008) | (0.010) | (0.007) | |
Hoa ethnic | 1.184 | 0.854 | 0.918 | 1.215 | 0.935 |
(0.221) | (0.138) | (0.136) | (0.229) | (0.124) | |
Minor ethnic | 0.643 | 0.363*** | 0.318*** | 0.660 | 0.392*** |
(0.241) | (0.137) | (0.105) | (0.244) | (0.106) | |
Foreign ethnic | 0.984 | 0.994 | 0.975 | 0.992 | 0.984 |
(0.220) | (0.163) | (0.154) | (0.225) | (0.144) | |
Debt structure | 2.124*** | 6.671*** | 7.616*** | 1.932*** | 5.850*** |
(0.135) | (0.333) | (0.359) | (0.112) | (0.252) | |
Revenue growth | 1.074*** | 1.014 | 1.014 | 1.076*** | 1.025** |
(0.019) | (0.015) | (0.014) | (0.021) | (0.012) | |
Asset structure | 0.440*** | 1.034 | 1.154** | 0.444*** | 0.956 |
(0.039) | (0.063) | (0.066) | (0.040) | (0.050) | |
Firm size | 0.969 | 1.106*** | 1.079*** | 0.967 | 1.071*** |
(0.021) | (0.019) | (0.018) | (0.021) | (0.016) | |
Web | 1.257*** | 1.001 | 1.290*** | 1.257*** | 1.180*** |
(0.056) | (0.037) | (0.045) | (0.056) | (0.037) | |
eBuy | 1.582** | 1.360* | 1.231 | 1.604** | 1.346** |
(0.308) | (0.233) | (0.201) | (0.320) | (0.202) | |
eSell | 0.953 | 0.977 | 0.944 | 0.997 | 0.959 |
(0.087) | (0.083) | (0.077) | (0.096) | (0.073) | |
eCommerce | 1.366 | 1.275 | 1.329 | 1.235 | 1.314 |
(0.404) | (0.338) | (0.336) | (0.411) | (0.305) | |
South | 1.391 | 12.321*** | 7.792*** | 1.313 | 5.416*** |
(0.688) | (7.559) | (4.286) | (0.637) | (2.138) | |
Provincial construction | 1.084*** | 1.152*** | 1.070*** | 1.099*** | 1.104*** |
(0.013) | (0.010) | (0.009) | (0.015) | (0.009) | |
Provincial consumption | 0.988*** | 0.960*** | 0.969*** | 0.986*** | 0.969*** |
(0.002) | (0.002) | (0.002) | (0.002) | (0.001) | |
Cumulative FDI | 0.842*** | 0.657*** | 0.688*** | 0.847*** | 0.693*** |
(0.029) | (0.018) | (0.017) | (0.028) | (0.016) | |
SOE capital | 0.042*** | 0.020*** | 0.076*** | 0.022*** | 0.037*** |
(0.024) | (0.009) | (0.034) | (0.014) | (0.015) | |
Local governance quality | 1.006 | 1.025*** | 1.021*** | 1.007 | 1.021*** |
(0.006) | (0.004) | (0.004) | (0.005) | (0.004) | |
VIF | 2.951 | 3.201 | 3.225 | 3.148 | 3.278 |
R-squared | 0.064 | 0.068 | 0.064 | 0.064 | 0.066 |
Observations | 204,135 | 204,135 | 204,135 | 81,725 | 204,135 |
4.2 Cognitive financial constraints and firm performance
(1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
---|---|---|---|---|---|---|---|---|
Revenue growth | Revenue growth | Revenue growth | Revenue growth | Asset growth | Asset growth | Asset growth | Asset growth | |
Intention | 0.045*** | 0.055*** | 0.083*** | 0.071*** | ||||
(0.017) | (0.017) | (0.013) | (0.013) | |||||
Dissatisfied | 0.040*** | 0.038*** | 0.119*** | 0.115*** | ||||
(0.011) | (0.011) | (0.010) | (0.009) | |||||
Satisfied | 0.041*** | 0.040*** | 0.122*** | 0.121*** | ||||
(0.012) | (0.012) | (0.009) | ||||||
Owner age | − 0.003*** | − 0.004*** | − 0.004*** | − 0.004*** | 0.002*** | − 0.000 | − 0.001 | − 0.001* |
(0.001) | (0.001) | (0.001) | (0.000) | (0.001) | (0.000) | (0.000) | (0.000) | |
Owner gender | 0.032* | 0.003 | 0.011 | 0.004 | 0.011 | 0.010 | 0.006 | 0.004 |
(0.018) | (0.014) | (0.011) | (0.009) | (0.015) | (0.011) | (0.009) | (0.007) | |
Firm age | − 0.015*** | − 0.017*** | − 0.013*** | − 0.016*** | − 0.004*** | − 0.006*** | − 0.005*** | − 0.006*** |
(0.001) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | |
Firm size | 0.061*** | 0.049*** | 0.027*** | 0.040*** | 0.104*** | 0.063*** | 0.047*** | 0.047*** |
(0.008) | (0.006) | (0.005) | (0.004) | (0.007) | (0.005) | (0.004) | (0.003) | |
Profitability | 0.935*** | 1.185*** | 1.053*** | 1.124*** | 0.450*** | 0.470*** | 0.314*** | 0.386*** |
(0.082) | (0.073) | (0.059) | (0.051) | (0.076) | (0.063) | (0.052) | (0.044) | |
Asset structure | − 0.089*** | − 0.081*** | − 0.064*** | − 0.079*** | − 0.129*** | − 0.181*** | − 0.196*** | − 0.212*** |
(0.035) | (0.025) | (0.022) | (0.017) | (0.028) | (0.019) | (0.016) | (0.013) | |
Debt structure | 0.170*** | 0.203*** | 0.179*** | 0.195*** | 0.310*** | 0.328*** | 0.329*** | 0.336*** |
(0.028) | (0.022) | (0.019) | (0.016) | (0.024) | (0.018) | (0.016) | (0.012) | |
Investment | 0.115** | 0.244*** | 0.225*** | 0.246*** | 0.406*** | 0.547*** | 0.512*** | 0.591*** |
(0.046) | (0.035) | (0.032) | (0.025) | (0.049) | (0.034) | (0.028) | (0.022) | |
Provincial constructions | 0.011** | 0.005* | 0.005* | 0.007*** | − 0.008** | − 0.006*** | − 0.004** | − 0.005*** |
(0.004) | (0.003) | (0.003) | (0.002) | (0.003) | (0.002) | (0.002) | (0.001) | |
Provincial consumptions | − 0.003*** | − 0.002** | − 0.002*** | − 0.002*** | − 0.007*** | − 0.007*** | − 0.006*** | − 0.007*** |
(0.001) | (0.001) | (0.001) | (0.000) | (0.001) | (0.001) | (0.000) | (0.000) | |
Distance | 0.027 | − 0.008 | − 0.015 | − 0.006 | 0.149** | 0.043 | 0.056* | 0.034 |
(0.094) | (0.062) | (0.050) | (0.041) | (0.059) | (0.038) | (0.032) | (0.025) | |
Cumulative FDI | − 0.026 | − 0.013 | − 0.016 | − 0.014 | − 0.009 | − 0.017* | − 0.020** | − 0.026*** |
(0.016) | (0.013) | (0.010) | (0.009) | (0.013) | (0.010) | (0.008) | (0.007) | |
SOE capital | − 0.190 | − 0.112 | − 0.099 | − 0.152** | 0.231*** | 0.272*** | 0.181*** | 0.220*** |
(0.120) | (0.089) | (0.079) | (0.062) | (0.085) | (0.059) | (0.055) | (0.041) | |
Local governance quality | − 0.001 | − 0.004** | − 0.002* | − 0.003*** | 0.004*** | 0.005*** | 0.005*** | 0.005*** |
(0.002) | (0.002) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | (0.001) | |
VIF | 2.512 | 2.354 | 2.884 | 3.102 | 2.512 | 2.441 | 2.058 | 3.021 |
Hansen (J) | 0.147 | 0.065 | 0.027 | 0.186 | 0.124 | 0.055 | 0.623 | 0.417 |
Stock-Wright LM S | 0.142 | 0.066 | 0.000 | 0.000 | 0.097 | 0.018 | 0.029 | 0.000 |
Anderson-Rubin | 0.184 | 0.079 | 0.000 | 0.000 | 0.125 | 0.024 | 0.036 | 0.000 |
Kleibergen-Paap | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
Sanderson-Windmeijer | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
Observations | 204,135 | 204,135 | 204,135 | 204,135 | 204,135 | 204,135 | 204,135 | 204,135 |
R-squared | 0.036 | 0.032 | 0.034 | 0.043 | 0.120 | 0.121 | 0.119 | 0.126 |