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External Financing and Innovation in Small and Medium Enterprises—The Case of  Vietnam

Author

Listed:
  • Thanh Tien Pham

    (Faculty of Economics and Public Management Ho Chi Minh City Open University Ho Chi Minh City, Vietnam)

  • Danh Vinh Le

    (Faculty of Finance and Banking Ton Duc Thang University Ho Chi Minh City, Vietnam)

  • Huong Thi Thu Le

    (College of Business and Technology Northeastern Illinois University Chicago, Illinois, USA)

  • Lai Van Vo

    (Ancell School of Business Western Connecticut State University Danbury, Connecticut, USA)

Abstract

This paper investigates the relationship between the capacity of small- and medium-sized enterprises (SMEs) to access external capital and their innovation activities in Vietnam. Our findings reveal that SMEs with higher external financing capacity, as measured by debt and loan ratios, are more actively engaged in innovation. Even after controlling for various firm characteristics, long-term debt remains significantly and positively associated with innovation. Additionally, we demonstrate that both bank loans and informal loans from family and friends play a crucial role in fostering SME innovation, particularly in the development of new products and technologies. Overall, our study highlights the critical role of external financing in driving innovation among SMEs in Vietnam.

Suggested Citation

  • Thanh Tien Pham & Danh Vinh Le & Huong Thi Thu Le & Lai Van Vo, 2025. "External Financing and Innovation in Small and Medium Enterprises‚ÄîThe Case of ¬†Vietnam," Asian Economic Papers, MIT Press, vol. 24(2), pages 59-86, Summer.
    • Handle: RePEc:tpr:asiaec:v:24:y:2025:i:2:p:59-86
    DOI: 10.1162/asep_a_00947
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