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Article
Publication date: 25 June 2020

Lan Archer, Parmendra Sharma and Jen-Je Su

A review of literature has documented that accessing formal credit and other banking services has always been a crucial challenge for small and medium-sized enterprises (SMEs)…

Abstract

Purpose

A review of literature has documented that accessing formal credit and other banking services has always been a crucial challenge for small and medium-sized enterprises (SMEs). The alternative, therefore, tends to be informal channels. However, the credit constraint vis-à-vis informal channel link does not appear to be well documented in the literature. This study aims to investigate whether credit constraints significantly affect the probability of accessing informal credit, as well as the credit values of Vietnamese SMEs.

Design/methodology/approach

This study uses a trinary approach and correlated random-effects Probit and Tobit techniques to avoid the incidental coefficients problem.

Findings

The results suggest that relative to unconstrained and partially constrained firms, fully constrained firms tend to be more active in the informal credit markets, shown by their higher probability of informal credit access and larger credit values.

Originality/value

To the best of authors’ knowledge, this is the first study on Vietnam that takes a different approach to credit constraints and examines their impact on informal credit access. Policy implications arise and are discussed.

Peer review

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2017-0543

Details

International Journal of Social Economics, vol. 47 no. 6
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 18 October 2019

Martinson Ankrah Twumasi, Yuansheng Jiang and Monica Owusu Acheampong

The purpose of this paper is to determine the factors influencing rural youth farmers’ credit constraints status and the effect of credit constraint on the intensity of…

Abstract

Purpose

The purpose of this paper is to determine the factors influencing rural youth farmers’ credit constraints status and the effect of credit constraint on the intensity of participation of these farmers in Ghana.

Design/methodology/approach

The econometric estimation is based on cross-sectional data collected in 2018 from the Brong Ahafo region in Ghana. The sample data set consists of 450 rural youth farmers. The collected data were analyzed through different econometric techniques, using the endogenous switching regression model (ERSM).

Findings

The direct elicitation approach employed in this study revealed that out of the 450 farmers, 211 (47 percent) of the respondents were credit constrained compared to 239 (53 percent) of their counterparts who were unconstrained. The ERSM indicated that youth farmers education, age, savings, parents occupation reduced the probability of the rural youth farmer to be credit constrained but cumbersome loan application procedure and loan disbursement time positively affect credit constraint. Moreover, farmers that are credit constrained have lower intensity of participation in agriculture activities than a random farmer from the sample. This suggests that access to credit has a positive impact on the intensity of participation in agriculture activities.

Research limitations/implications

In this study, only rural youth farmers in a particular region were considered. However, there are youths all over the nation. Therefore, future researchers could consider other youth’s farmers elsewhere in the country.

Originality/value

Although existing studies have examined rural youth farmers’ participation in agriculture and credit constraint separately, the unique contribution of this paper is the analysis of credit constraint of rural youth farmers as well as the impact of credit constraint on the intensity of participation in agriculture activities.

Details

Agricultural Finance Review, vol. 80 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 4 May 2012

Pavel Ciaian, Jan Fałkowski and d'Artis Kancs

The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and…

1108

Abstract

Purpose

The purpose of this paper is to analyse how farm production and input use (land, variable inputs, labour, and capital) is related to farm access to credit in the Central and Eastern Europe (CEE) transition countries.

Design/methodology/approach

Drawing on a unique farm level panel data set with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the CEE transition countries. The large size of the FADN data set has an additional advantage. It allows the authors to employ a semi‐parametric estimator based on the propensity score matching. Using more than 37,409 observations assures that the loss in efficiency of semi‐parametric estimates, as compared to parametric ones, is not a problem. This is important for at least two reasons. First, applying a semi‐parametric propensity score matching (PSM) estimator allows to control for any heterogeneity in the relationship between farm performance and their observable characteristics (in particular access to credit). Second, matching estimators are robust in situations where farms having access to credit systematically differ from those that do not.

Findings

It is found that farms are asymmetrically credit constrained between inputs. The use of variable inputs and capital investment increases up to 2.3 percent and 29 percent, respectively, per 1,000 EUR of additional credit. The authors' estimates suggest also that farm access to credit increases the total factor productivity up to 1.9 percent per 1,000 EUR of additional credit, indicating that an improved access to credit results in adjusting the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land.

Originality/value

To the best of the authors' knowledge, the present paper is the first to investigate the importance of access to credit for farm performance in the CEE region as a whole.

Details

Agricultural Finance Review, vol. 72 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 8 August 2016

Minh Chau Tran, Christopher E.C. Gan and Baiding Hu

– The purpose of this paper is to identify factors affecting formal credit constraint status of rural farm households in Vietnam’s North Central Coast (NCC) region.

Abstract

Purpose

The purpose of this paper is to identify factors affecting formal credit constraint status of rural farm households in Vietnam’s North Central Coast (NCC) region.

Design/methodology/approach

Using the direct elicitation method (DEM), the authors consider both internal and external credit rationing.

Findings

Empirical evidences confirm the importance of household head’s age, gender and education to household’s likelihood of being credit constrained. In addition, households who have advantages in farm land size, labour resources and non-farm income are less likely to be credit constrained. Poor households are observed to remain restricted by formal credit institutions. Results from the endogenous switching regression model suggest that credit constraints negatively impact household’s consumption per capita and informal credit can act as a substitute to mitigate the negative influence of formal credit constraints.

Research limitations/implications

One limitation arises from the usage of the DEM to identify credit constrained households. The method cannot detect effective and ineffective constraints. Another limitation is the inability of cross-section data to capture long-term impacts of credit constraints on household welfare. Finally, causes of credit constraints from the lender’s view cannot be observed.

Practical implications

The results suggest that it is necessary to enhance the credit allocation regime to reduce the transaction cost and provide target households with sufficient credit. It should be emphasized that high transaction cost and the mismatch between credit demand and supply stemming from information asymmetry. The government can help formal financial institutions to reduce information cost by encouraging the active role of social organizations such as Women Unions, Youth Unions and Veteran Unions in bridging rural farm households with formal lenders.

Originality/value

There are limited studies focusing on determinants of credit constraints and their impacts on rural farm households. To the best of the knowledge, there is no study evaluating the impact of credit constraints on rural farm household welfare particularly in Vietnam. In addition, the studies related to credit constraints only considered full quantity rationing (households applied for the loan but were rejected), omitting the case of partly quantity rationing (loan obtained by the borrowers is less than their demand) and self-rationing.

Details

International Journal of Social Economics, vol. 43 no. 8
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 2 November 2012

Fengxia Dong, Jing Lu and Allen M. Featherstone

The purpose of this paper is to examine the effect of credit constraints on agricultural productivity in China.

1891

Abstract

Purpose

The purpose of this paper is to examine the effect of credit constraints on agricultural productivity in China.

Design/methodology/approach

Using data from a rural financial survey, a switching regression model is used to account for endogeneity and heterogeneity. Carter presents three ways that credit might affect the production functions; a shift along a given production surface by allowing an optimal level of inputs, a shift the production surface out by allowing the purchase of more efficient inputs, and the third is to increase net revenue by more intensive use of fixed inputs and resources. Thus, the effects of factors on agricultural productivity may not be independent of credit status; therefore, separate functions for creditconstrained and non‐constrained households are examined.

Findings

Empirical estimates of the impacts of credit constraints on agricultural productivity are provided for the Heilongjiang province, a major agricultural production area, in Northeast China. By removing credit constraints, average agricultural productivity was estimated to be increased by 75 percent. Under credit constraints, labor inputs, along with a farmers' education, cannot be fully employed because of an inappropriate mix of inputs.

Research limitations/implications

Young farmers may not be able to leverage their comparative advantage for physically intensive farm work under credit constraints. Because of data limitations, the research does not include information on informal credit in the estimation, which may underestimate the effects of credit constraints.

Originality/value

This study provides an analysis of the impacts of credit constraints on rural household productivity for the Heilongjiang province, a major agricultural production region, in Northeast China.

Details

Agricultural Finance Review, vol. 72 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 17 April 2020

Haruna Issahaku, Ishaque Mahama and Reginald Addy–Morton

The purpose of this study is to assess the impact of credit constraints on agricultural labour productivity as well as the impact of credit constraints and agricultural labour…

Abstract

Purpose

The purpose of this study is to assess the impact of credit constraints on agricultural labour productivity as well as the impact of credit constraints and agricultural labour productivity on rural households' consumption in Ghana.

Design/methodology/approach

This study uses the Ghana Living Standard Survey round six (GLSS 6) as the main source of data, which happens to be one of the most comprehensive household datasets in Ghana. Quantitative estimation techniques (namely: Endogenous Switching Regression and Two Stage Least Squares) are used to address possible endogeneity and selection into credit markets.

Findings

First, large households are prone to credit constraints while age (experience) and compliance with extension advice reduce credit constraints. Second, the determinants of agricultural labour productivity for both constrained and unconstrained households are age, sex, farm equipment, herbicide and farm size. Third, household size, education and livestock rearing influence agricultural labour productivity of constrained households. Fourth, credit constraints, irrespective of how they are measured, impede agricultural labour productivity while access to credit fosters labour productivity. Lastly, credit constraints robustly reduce consumption while agricultural labour productivity strongly enhances rural households' consumption.

Originality/value

The first contribution is that, unlike most previous studies, we do not focus on the widely used measure of productivity – output per unit land, but on agriculture labour productivity in particular. Secondly, unlike most previous studies which examine the effect of credit constraints either on productivity alone or consumption alone, our study examines the impact of credit constraints on both. Thirdly, unlike the existing literature which uses one or two measures of credit constraints, we use a wide range of measures of credit constraints – seven different measures of credit constraints. Lastly, our empirical strategy solves at least two critical econometric problems – sample selection bias and endogeneity.

Details

African Journal of Economic and Management Studies, vol. 11 no. 2
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 13 July 2021

Victor Owusu, Awudu Abdulai and Williams Ali

This article analyzes farmers' preferences for different nonindexed crop insurance alternatives, using discrete choice experiment data on cocoa farmers from southern Ghana. We…

Abstract

Purpose

This article analyzes farmers' preferences for different nonindexed crop insurance alternatives, using discrete choice experiment data on cocoa farmers from southern Ghana. We examine farmers' attendance to attributes by comparing self-reported attribute nonattendance (ANA) to the behavior inferred from the choices.

Design/methodology/approach

We utilize the latent class endogenous attribute attendance (EAA) model to address potential endogeneity by jointly modelling farmers' attribute processing strategies with their choice of attributes of the insurance products.

Findings

The results show that premium levels, mode and length of indemnity payouts tend to influence farmers' preferences for crop insurance products. The findings also reveal that credit-constrained farmers attend more to premium and payment mode attributes of the crop insurance products and that credit-constrained farmers tend to exhibit lower willingness-to-pay estimates for the crop insurance attributes.

Research limitations/implications

The findings from the study suggest that credit constraints do not only limit input use, but also tend to have statistically significant impact on farmers' cocoa insurance participation decisions.

Originality/value

The study examines the impact of credit constraints on farmers' crop insurance preferences while accounting for ANA.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 12 no. 5
Type: Research Article
ISSN: 2044-0839

Keywords

Article
Publication date: 19 August 2020

Igbekele Sunday Osinubi

Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress…

1134

Abstract

Purpose

Existing studies that documented the effect of financial distress on trade credit provisions did not include measures financial constraint. It is possible that financial distress is tie to financial constraints, and both financial distress and financial constraints mutually reinforce each other in their effects on trade credit provision. The purpose of this study is to evaluate the effects of financial constraint and financial distress on trade credit provisions in the UK FTSE 350 listed firms.

Design/methodology/approach

This study employs panel data in the estimation of the determinants of accounts payables and accounts receivables of the UK FTSE 350 firms from 2009 to 2017.

Findings

This study finds that financial distress has significant positive effect on accounts payables and a significant negative effect on accounts receivables. Financial constraints have significant negative effect on accounts payables and a significant positive effect on accounts receivables.

Practical implications

Trade creditor desiring to maintain an enduring product-market relationship grant more concessions to customer in financial distress. The amount of trade credit that sellers provide to financially constrained firm is an increasing function of the buyer's creditworthiness. The urgent cash needs of financially distressed firms lead them to sell trade receivables to factoring company leading to reduction in trade receivables. Firm facing external financing constraints increase trade credit to customers in anticipation of cash flow inflow to enhance liquidity.

Originality/value

This study shows that financial distress and financial constraints mutually reinforce each other in their effects on trade credit provisions, and firm's financing condition contributes to divergence in trade credit policies.

Details

Asian Review of Accounting, vol. 28 no. 4
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 14 May 2018

Gongbing Bi, Ping Chen and Yalei Fei

The purpose of the paper is to explore impacts of financing and supplier subsidy on capital-constrained retailer and the value of returns subsidy contract under a situation where…

Abstract

Purpose

The purpose of the paper is to explore impacts of financing and supplier subsidy on capital-constrained retailer and the value of returns subsidy contract under a situation where the retailer makes joint operations and finance decisions.

Design/methodology/approach

This paper considers a two-level supply chain, including a retailer and a supplier. Facing problems of capital constraints and even customer returns, the newsvendor-like retailer orders from a well-capitalized supplier. The supplier allows the retailer a delay in payment and provides a subsidy contract to alleviate its problems if it is profitable. Considering their difference of initial capital status, the retailer is assumed to be Follower of Stackelberg Game and the supplier is the Leader.

Findings

The supplier return subsidy contract has some merits for both of partners in the chain. And it does not coordinate the supply chain when the retailer has enough initial capital; however, when the retailer is capital constrained, it does. In addition, the retailer’s initial capital level significantly affects the supplier’s subsidy decision.

Research limitations/implications

Return rate is simplified to a fixed proportion of completed demand. In addition, trade credit is only financing source in this paper, and other types of financing methods, such as bank credit, can be taken too.

Originality/value

This paper first incorporates trade credit financing and customer returns into a modeling framework to investigate the capital-constrained retailer’s joint operations and finance decisions and the value of supplier’s subsidy contract.

Details

Journal of Modelling in Management, vol. 13 no. 2
Type: Research Article
ISSN: 1746-5664

Keywords

Article
Publication date: 5 March 2018

Candida Bussoli and Francesca Marino

The purpose of this paper is to investigate the use of trade credit in a sample of small and medium enterprises in Europe, before and after the outbreak of the subprime financial…

1003

Abstract

Purpose

The purpose of this paper is to investigate the use of trade credit in a sample of small and medium enterprises in Europe, before and after the outbreak of the subprime financial crisis and the sovereign debt crisis (2006-2013). This study aims to verify whether trade credit is an alternative source of funding compared to other sources of financing. In addition, it tests whether firms that grant extended payment terms to their customers demand delayed accounts payable terms from their suppliers.

Design/methodology/approach

The empirical analysis is conducted on a sample of European SMEs that were observed over the period immediately before and after the outbreak of the subprime crisis (2008) and the sovereign debt crisis (2010-2011). A panel data analysis is conducted using the generalized method of moment.

Findings

The results suggest that SMEs with a high probability of insolvency use trade credit more extensively. Distressed and weaker SMEs are less able to match accounts receivable to accounts payable. Finally, the evidence suggests that during the financial crises, the substitution hypothesis is weakened and liquidity shocks are propagated through trade credit channels.

Originality/value

This study contributes to the extant literature as very few studies have analyzed intercompany financing for European SMEs during periods of financial crisis. The results suggest that supporting trade credit channels, through timely injections of liquidity to companies, could reduce the impact of both financial and intercompany credit crunch on SMEs.

Details

Journal of Small Business and Enterprise Development, vol. 25 no. 2
Type: Research Article
ISSN: 1462-6004

Keywords

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