A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy, School of Management

Thesis (Ph.D.) - Asian Institute of Technology, 2007

Anecdotal evidence suggests that private small and medium sized enterprises (SMEs) have limited access to bank loans. This raises a very basic question of what factors influence the bank loan availability and loan terms. A growing body of literature on the factors influencing bank financing of SMEs has not yet fully addressed several issues. Firstly, there is a lack of a model that accounts for firm growth stages in accessing bank loans. Secondly, while relationships with banks have been found to be important for SMEs' access to bank loans, the distinctive impact of interpersonal and inter-organizational relationships with banks have not been addressed. Thirdly, the impact of firm's overall networking on bank financing is largely overlooked. Finally, there is a lack of empirical tests in different contexts, especially in transition economies. This study helps narrow this gap in the literature by employing an institutional perspective and argues that a firm's legitimacy positively influences access to bank financing. Specifically, this study develops a model of determinants of bank financing by private SMEs, and tests that model in Vietnam. A combination of different research methods has been used to capture factors influencing bank financing to private SMEs in the under-studied context of Vietnam. In-depth interviews were conducted with a State bank official, bank officers and private SMEs owners. Based on insights from the interviews a literature-based-model was designed and tested with a sample of 214 private SME owner-managers. The study's results indicate that later stage firms enjoy lower interest rates and shorter loan approval times than earlier stage firms. The results also suggest there are considerable benefits associated with inter-organizational banking relationships for bank financing (higher bank loan availability with more favorable terms). On the other hand, the effects of inter-personal relationships, networking and professional management practices on bank financing are contingent on a firm's growth stage.