Firm Characteristics and Credit Constraints across SMEs in the Philippines

Abstract

This paper analyzed the relationship between firm characteristics and credit constraints among small and medium enterprises (SMEs) in the Philippines. In particular, we determined whether an SME’s firm characteristics are correlated to the predicted probability of being credit-constrained or “quasi-constrained” — i.e. able to borrow from informal sources. Estimates of marginal effects at the means (MEMs) from logistic regressions provide some suggestive evidence that firm size, previous purchase of fixed assets, and increased use of digital technologies for accounting and financial management are associated with a lower predicted probability of being credit-constrained for the average SME in our sample. However, with the exception of digital technology use, these firm characteristics are not significant in predicting the probability that the average SME is quasi-constrained. This implies that the firm characteristics that are significant in accessing finance solely through formal channels may not be significant when considering informal sources. We also found that the increased adoption of digital technologies has an inverse association with the predicted probability of being credit-constrained and quasi-constrained for the average SME in our sample, although our analysis did not establish the direction of causality.