Banking relationship and bank financing: The case of Vietnamese small and medium-sized enterprises

Banking relationship and bank financing: The case of Vietnamese small and medium-sized enterprises. Banking relationship is seen as a critical factor for Small and Medium-sized Enterp rises (SMEs) in getting bank financing. In this study, I develop a model that examines the relative imp ortance of inter-organizational and inter-personal banking relationship son firm bank financing. | Journal of Economics and Development Vol. 15, , April 2013, pp. 74 - 90 ISSN 1859 0020 Banking Relationship and Bank Financing: The Case of Vietnamese Small and Medium-sized Enterprises Le Thi Bich Ngoc National Economics University, Vietnam Email: lebichngoc25@ Abstract Banking relationship is seen as a critical factor for Small and Medium-sized Enterprises (SMEs) in getting bank financing. In this study, I develop a model that examines the relative importance of inter-organizational and inter-personal banking relationships on firm bank financing, and report an empirical test from a sample of SMEs in the transition economy of Vietnam. The results support the central hypothesis that close banking relationships play an important role in getting bank financing. However, inter-organizational and inter-personal banking relationships are not equally important in helping SMEs access bank loans. The study provides theoretical and managerial implications. Keywords: Banking relationship, inter-organizational relationship, inter-personal relationship, bank financing, SMEs. Journal of Economics and Development 74 Vol. 15, , April 2013 1. Introduction for solving asymmetric information and agency cost problems and improving a firm’s bank financing (Brau, 2002; Blackwell and Winters, 2000; Coleman, 2000; Binks & Ennew, 1997; Berger and Udell; 1995). Finance has been viewed as a critical element for the expansion or diversification of small and medium size enterprises. Such growth could not have occurred without extensive participation by equity and debt lenders. Despite the rapid development of venture capital resources, small businesses continue to face a severe lack of alternatives in obtaining financing. Previous studies (. Tenev et al., 2003; Van Auken, 2001; Coleman, 2000) indicated two predominant sources of financing in the capital structures of small businesses: equity and commercial banks. Relationships between SMEs and .