The impacts of external borrowings on corporate diversification: An empirical study in Vietnam

Abstract

This thesis aims to investigate the effect of external borrowings on diversification strategy of SMEs in Vietnam. Data is collected from 2011 and 2013 of Small and Medium Enterprise (SMEs) surveys in Vietnam. Quantitative methods are proposed to testify the hypothesizes in this thesis. Diversification is the dependent variable constructed as a zero-one dummy variable. Two main independent variables include Formal Loans and Informal Loans. To control for other factors affecting diversification, control variables including Firm Size, Firm age, ROA, Fixed assets, Education, and Experience are supplemented. From the findings, we find that firms seem to be more in pursuing diversification strategy if they can obtain more external borrowings, either from formal or informal sources. Also, more interestingly, long-term loans appear to have positive significant effect on Diversification. In addition, adverse effect of excessive formal loans on Diversification is also found in this thesis. The findings also point out that diversification of medium-sized firms tend to be higher with more external borrowings, whereas large-sized firms with greater informal loans tend to engage more in diversification. However, external borrowings of small firms seem to have no significant effect on diversification.