Does institutional quality matter in SME financing? Empirical evidence on credit access and investment behavior

Laras  Angelia Nirwana Sari; Liya Setiawati

doi:10.69725/jebi.v2i2.273

Authors

Laras Angelia Nirwana Sari Department of Accounting, STIE Gema Widya Bangsa, Bandung, Indonesia
Liya Setiawati Department of Management, STIE Gema Widya Bangsa, Bandung, Indonesia

DOI:

https://doi.org/10.69725/jebi.v2i2.273

Keywords:

Quality of institution, Structure finance, Investment, Effect replacement, Governance

Abstract

Purpose: Therefore, we are motivated to investigate how the quality of institution molds firms financing choices and investment behaviour over administrated external or internal sources of finance.
Method: Adopting multivariate regression and moderation analysis, this paper conducted a quantitative research which investigated the association between institutional quality, financing access and investment behavior based on firm-level data.
Findings: The findings indicate that the quality of institutions significantly increases the ability to access external finance, whereas institutional inefficiency raises reliance on internal capital. Interaction between external and internal financing further confirms a substitution effect: Firms tend to dynamically adjust their funding structure according to the strength of institutions. The empirical findings also reveal that the role of institutions in shaping tangible investment is all the more vital, stressing governance quality as a pre-requisite for both financial inclusiveness and capital creation.
Novelty: This paper combines institutional and financing considerations in a single empirical setting to overcome the poor evidence on how institutional quality jointly determines access to finance and investment behaviour. It offers a new concept lens to explain substitution financing mechanisms in the institutional divergence, Emerging economies.
Implications: The results are evidence that institutional reforms, transparency and governance improvement is a key element in the development of financial accessibility and investment growth. Policy makers should encourage institutional effectiveness to promote sustainable economic growth and alleviate firms’ reliance on internal capital sources.

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Author Biographies

Laras Angelia Nirwana Sari, Department of Accounting, STIE Gema Widya Bangsa, Bandung, Indonesia

Liya Setiawati is a faculty member at the Department of Management, Faculty of Economics and Business, Sekolah Tinggi Ilmu Ekonomi (STIE) Gema Widya Bangsa, Indonesia. Her research expertise lies in business strategy, Islamic finance, and institutional management, with a particular emphasis on the intersection between ethics, governance, and financial inclusion. She has been actively involved in academic development initiatives and has published works exploring organizational behavior and policy frameworks supporting sustainable business practices. Her scholarly contributions reflect a strong commitment to advancing management research in the Indonesian higher education context.
Liya Setiawati, Department of Management, STIE Gema Widya Bangsa, Bandung, Indonesia

Liya Setiawati is a faculty member at the Department of Management, Faculty of Economics and Business, Sekolah Tinggi Ilmu Ekonomi (STIE) Gema Widya Bangsa, Indonesia. Her research expertise lies in business strategy, Islamic finance, and institutional management, with a particular emphasis on the intersection between ethics, governance, and financial inclusion. She has been actively involved in academic development initiatives and has published works exploring organizational behavior and policy frameworks supporting sustainable business practices. Her scholarly contributions reflect a strong commitment to advancing management research in the Indonesian higher education context.

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