SME finance : constraints and an information asymmetric perspective / Chokey Wangmo and Sardar M. N. Islam.

Format:

Book

Author/Creator:

Wangmo, Chokey, author.

Islam, Sardar M. N., 1950- author.

Series:

Financial Institutions and Services

Language:

English

Subjects (All):

Small business--Finance.

Physical Description:

1 online resource (344 pages)

Place of Publication:

New York, New York : Nova Science Publishers, Incorporated, [2021]

Summary:

"This book, titled SME Finance: Constraints and an Information Asymmetric Perspective, studies the gap between bank financing and the small and medium sized enterprises (SME) sector, based on the economic theories of information asymmetry and agency theory. Access to finance continues to remain one of the key constraints faced by SMEs to start and expand businesses, particularly in the developing economies where access to bank loans is subject to the availability of collateral. The SME financing gap, studied from the perspectives of both the key actors - banks and SMEs - is well presented in this book. The authors have used Sequential Explanatory Design, a mixed methodology, to collect data from SMEs and banks. The econometric model of the study represented SMEs' debt accessibility as a function of independent variables of loan repayment capacity, financial information, characteristics of the firm and owner and bank loan characteristics. The book provides empirical evidence that SME financing constraints are caused by factors arising from SMEs as well as the banks, primarily SMEs' high information opacity and banks' imposition of collateral to offset the credit risk. In the estimation of the econometric model, the size of collateral and owner's equity were among the most significant predictor variables. Likewise, the thematic analysis of interview data of credit officers to understand the banks' lending behavior evidenced a strong positive relationship between the size of the collateral and owner's equity and access to bank loans. SMEs' high information opacity and credit risk induced adverse selection and credit rationing on the part of finance providers. The findings of this book contribute towards academic literature on developing economies characterized by limited data available for academic and empirical research. This book provides a unique example of rigorous research on SME finance within an information economics framework. The theoretical issues are nicely balanced by the practical application of information economics to an emerging market. It can be used as a reference by researchers, academics, practitioners and policy makers in the areas of development finance, banking, development economics, microfinance and rural development. In addition, it can be used as an academic reference for a finance subject at the Master's or Doctoral level. The book is relevant to key stakeholders in understanding the debt inaccessibility from SMEs and the banks in drafting policies and measures to address the SME financing gap"-- Provided by publisher.

Contents:

Intro

Contents

List of Tables

List of Figures

Foreword

Preface

Acknowledgments

References

About the Authors

List of Abbreviations

Chapter 1

Introduction

1.1. Introduction to SME Finance

1.2. Research Problem

1.3. Research Aims and Objectives

1.4. Research Questions and Hypotheses

1.5. Research Design and Methodology

1.6. Conceptual and Theoretical Framework

1.7. Contribution and Significance of the Book

1.8. Structure of the Book

Chapter 2

Bhutan - Business, Finance and SME

2.1. Introduction

2.2. Country Background - Geographical, Political and Economical

2.3. Entrepreneurship in Bhutan

2.4. Interventions: Policies and Programs

2.5. SME Finance in Bhutan - Issues and Challenges

2.6. Microfinance in Bhutan - A New Beginning

2.7. Impact of COVID-19 and Response to Economic Recovery

Conclusion

Chapter 3

SME Finance: Issues and Theories

3.1. Introduction

3.2. Theoretical Contexts

3.2.1. The Theory of Information Asymmetry

3.2.2. Agency Theory

3.2.2.1. Adverse Selection

3.2.2.2. Moral Hazard

3.2.2.3. Credit Rationing

3.2.3. The Pecking Order Theory

3.2.4. Trade-Off Theory

3.3. SME Component of the SME Financing Gap

3.3.1. Firm Characteristics

3.3.1.1. Firm Size

3.3.1.2. Firm Age

3.3.1.3. Firm Sector

3.3.2. Owner Characteristics

3.3.2.1. Owner's Age

3.3.2.2. Owner's Educational Qualification

3.3.2.3. Owner's Gender

3.4. Bank Component of the SME Financing Gap

3.4.1. SME Financing Risk

3.4.2. Bank Lending Technologies

3.4.2.1. Asset Based Lending

3.4.2.2. Relationship Lending

3.4.2.3. Loan Characteristics

3.5. SME Financing Interventions

3.6. Microfinance - Complementary to SME Finance

3.7. COVID-19 and Its Impact on the Economy

3.8. Literature Gap

Chapter 4.

Research Design and Methodology: Theoretical Framework

4.1. Introduction

4.2. Research Paradigm and Design

4.3. Conceptual Framework

4.3.1. Borrower (SME) Perspective

4.3.2. Lender (Banks) Perspective

4.3.3. Interventions

4.4. Research Questions

4.5. Hypotheses Development

4.5.1. Hypothesis 1: SME Loan Repayment Capacity

4.5.2. Hypothesis 2: SME Financial Information

4.5.3. Hypothesis 3: Loan Characteristics

4.5.4. Hypothesis 4 and 5: SME and Owner Characteristics

4.6. Multiple Linear Regression Model

4.6.1. Development of the Research Model

4.6.2. Dependent Variable Definition

4.6.3. Independent Variables Definition

4.7. Phase I Quantitative Data Collection (SME Survey)

4.7.1. Sample of the Study

4.7.2. Rational for Sample Size

4.7.3. Survey Instrument

4.7.3.1. Survey Questionnaire

4.7.3.2. Validity and Reliability of Survey Questionnaire

4.7.3.3. Face-to-Face Survey of SME Owners

4.8. Phase II Qualitative Data Collection (Credit Officers Interview)

4.8.1. Sample of the Study

4.8.2. Sample Size

4.8.3. Interview Instrument

4.8.3.1. Interview Questions

4.8.3.2. Validity and Reliability of Interview Questions

4.8.3.3. Telephonic Interviews of Credit Officers

4.9. Ethical Issues and Considerations

Chapter 5

Descriptive Statistics of SMEs

5.1. Introduction

5.2. Data Preparation and Screening

5.3. Preliminary Information on SME Survey

5.3.1. Survey Questionnaire Response

5.3.2. Reasons for Rejection of SME Loan Applications

5.4. Descriptive Statistics of Borrower and Non-Borrower SMEs

5.4.1. Characteristics of the SMEs

5.4.1.1. Business Sector and Ownership Style of SMEs

5.4.1.2. Fixed and Current Assets of SMEs

5.4.1.3. Age of SMEs

5.4.1.4. Number of Employees of SMEs.

5.4.2. Characteristics of the SME Owners

5.4.2.1. Age of SME Owners

5.4.2.2. Gender of SME Owners

5.4.2.3. Educational Qualification of SME Owners

5.4.3. Financial Information of the SMEs

5.4.3.1. Internal Finance of SMEs

Sources of Internal Finance of SMEs

Size of Internal Finance of SMEs

5.4.3.2. Financial Management of SMEs

Types of Financial Statements maintained by SMEs

Level of Financial Information Management of SMEs

Quality of Financial Information

5.4.3.3. External Finance of SMEs

Reasons for Not Applying for Bank Loans

Information Required for Availing Bank Loans

Description of Loan Amount

Proportion of Bank Loan Approved to Loan Applied

Interest Rate Charged on SME Loan

Loan Term (Duration of Loan)

Collateral Used against Loan by SMEs

Proportion of Collateral Size to Loan Amount

5.5. Comparative Analysis of Borrower and Non-Borrower SMEs

Chapter 6

Data Analysis: Phase I Quantitative Method

6.1. Introduction

6.2. Descriptive Statistics of Numerical Variables

6.3. Multiple Linear Regression

6.4. Initial Examination of SME Survey Data

6.4.1. Continuity and Normality of Numerical Variables

6.4.1.1. Graphical Normality Test of Debt Accessibility (DA)

6.4.1.2. Graphical Normality Test of Internal Finance (INTFIN)

6.4.1.3. Graphical Normality Test of Firm Age (AGEF)

6.4.1.4. Variables Transformation: Natural Logarithm Function of Variables

6.4.1.5. Statistical Normality Test for DA, INTFIN and COLL

6.4.2. Generation of Dummy Variable for Categorical Independent Variables

6.4.3. Check for Missing Data

6.4.4. Check for Significant Outliers

6.4.5. Model Specification Error

6.4.5.1. Ramsey's Tests for Model Specification Error

6.4.5.2. Linktest for Model Misspecification Error

6.5. Diagnostic Tests.

6.5.1. Linearity in Parameters

6.5.2. Random Sampling

6.5.3. No Multicollinearity

6.5.3.1. Pearson Correlation Matrix

6.5.3.2. Variance Inflation Factor (VIF)

6.5.4. Zero Conditional Mean

6.5.5. Homoscedasticity

6.5.6. Normality of Residuals

6.5.6.1. Kdensity and Histogram of the Residuals

6.5.6.2. Probability Normal Plot and Quintile Normal Plot

6.6. Interpretation of the Regression Analysis Output

6.6.1. Goodness of Fit Statistics

6.6.2. Estimation of the Econometric Model

6.6.2.1. The Constant (α or β0)

6.6.3. Hypotheses Testing

6.6.3.1. Loan Repayment Capacity (Hypothesis 1)

Size of Internal Finance and Debt Accessibility

Collateral Size and Debt Accessibility

6.6.3.2. Firm Financial Information (Hypothesis 2)

6.6.3.3. Loan Characteristics (Hypothesis 3)

Interest Rate on Loan and Debt Accessibility

Duration of Loan and Debt Accessibility

6.6.3.4. Firm Characteristics (Hypothesis 4)

Firm Age and Debt Accessibility

Firm Size and Debt Accessibility

Firm Sector and Debt Accessibility

6.6.3.5. Owner Characteristics (Hypothesis 5)

Age of the Owner and Debt Accessibility

Gender of the Owner and Debt Accessibility

Educational Qualification the Owner and Debt Accessibility

6.6.4. Validation of the Model (Robustness Testing)

6.7. Supplementary Analyses to Substantiate Empirical Findings

6.7.1. Single Linear Regression Analysis

6.7.2. Hierarchical Multiple Linear Regression Analysis

Model 1

Model 2

Model 3

Model 4

Model 5

6.7.3. Discussion on Supplementary Regression Analyses

Chapter 7

Data Analysis: Phase II Qualitative Method

7.1. Introduction

7.2. Thematic Analysis of Qualitative Interview Data

7.3. Steps Involved in Qualitative Analysis

7.4. Profile of the Interview Respondents (Credit Officers).

7.4.1. SME Credit Unit

7.5. Evaluation of SME Loan Applications by the Banks

7.5.1. Loan Repayment Capacity

7.5.1.1. Internal Finance

7.5.1.2. Collateral

7.5.2. Financial Information

7.5.3. Loan Characteristics

7.5.3.1. Loan Interest

7.5.3.2. Loan Term

7.5.4. Firm Characteristics

7.5.4.1. Firm Age

7.5.4.2. Firm Size

7.5.4.3. Firm Sector

7.5.5. Owner Characteristics

7.5.5.1. Owner's Age

7.5.5.2. Owner's Gender

7.5.5.3. Owner's Educational Qualification

Chapter 8

Discussion, Recommendation and Conclusion

8.1. Introduction

8.2. Discussion of Research Findings

8.2.1. Loan Repayment Capacity

8.2.1.1. Internal Finance

8.2.1.2. Collateral Size

8.2.2. Financial Information

8.2.3. Loan Characteristics

8.2.3.1. Loan Interest

8.2.3.2. Loan Term

8.2.4. Firm Characteristics

8.2.4.1. Firm Age

8.2.4.2. Firm Size

8.2.4.3. Firm Sector

8.2.5. Owner Characteristics

8.2.5.1. Owner's Age

8.2.5.2. Owner's Gender

8.2.5.3. Owner's Educational Qualification

8.3. Key Research Findings and Conclusion

8.3.1. Research Question 1

8.3.2. Research Question 2

8.4. Theoretical and Practical Implications of the Study

8.4.1. Theoretical Contribution

8.4.2. Practical Implications

8.5. Recommendation

8.5.1. Recommendation for SMEs

8.5.1.1. Financial Information Management

8.5.1.2. Relationship Building with Finance Providers

8.5.2. Recommendation for Banks

8.5.3. Recommendations for Policy Makers

8.5.3.1. Establish an Independent Inquiry

8.5.3.2. Incentives of the Banks

8.5.3.3. Current and Post-COVID-19 Support

8.5.3.4. SME Oriented Policies and Strategies

8.5.3.5. Promote Healthy Banking Sector amidst COVID-19

8.5.3.6. MFIs - Economic Recovery Partner during and Post COVID-19.

8.5.3.7. Obligatory SME Financial Reporting.

Notes:

Description based on print version record.

Includes bibliographical references and index.

ISBN:

1-68507-141-4

OCLC:

1267766643

Publisher Number:

10.1596/1813-9450-8241