Economic Analysis and Policy 76 (2022) 554–567

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Economic Analysis and Policy

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Full length article

Financing SMEs and business development as new post

Covid-19 economic recovery determinants
∗
Yang Liu a , Azer Dilanchiev b , Kaifei Xu a , , Aytan Merdan Hajiyeva c,d
a
School of Management, University of Science and Technology of China, Hefei, 230000, China
b
Faculty of Business and Technologies, International Black Sea University, Georgia
c
Institute for European Studies, Tbilisi State University, Georgia
d
Afiyaddin Jalilov str. 26, apt.98, AZ1025, Baku, Azerbaijan

article info a b s t r a c t

Article history: This study explores the relationship between the business environment, economic
Received 6 April 2022 growth, and funding sources of Chinese small- and medium-sized enterprises (SMEs)
Received in revised form 6 September 2022 to determine the relevance of the business environment for technological SMEs. The
Accepted 7 September 2022
agency theory was used as a theoretical framework to describe how asymmetric
Available online 12 September 2022
information among SMEs and borrowers affects SMEs’ financial decisions as well as
JEL classification: China’s investment climate and GDP growth. A binary logistic test was used to assess
O40 the financing of SMEs and business development for economic recovery after the
O44 pandemic in China. Data from the World Economic Forum and Development Bank were
O1 examined. According to the results, funding (e.g., formal and informal) under the banking
O3 structure and tax regulation may potentially boost standard credit choices and lower
M20 casual credit choices. Consequently, it has demonstrated a considerable impact on GDP
M21
growth for technologically small and medium-sized enterprises. This study is the first to
Keywords: examine the asymmetric information and institutional theory regarding funding a café.
Business environment These findings are essential for business leaders and policymakers concerned with the
Asymmetric information financial health of small and medium-sized enterprises. Policy implications for important
Formal and informal funding stakeholders are also included in this study.
Chinese SMEs © 2022 Published by Elsevier B.V. on behalf of Economic Society of Australia, Queensland.
GDP growth

1. Introduction

SMEs are considered significant contributors to financial activity across many nations, including the least developed
ones. However, SMEs often encounter significant fundraising challenges without an acute shortage of finance due to
informational asymmetries or a debt burden, making it challenging for them to acquire cold, hard cash from institutions
(Emrouznejad and Amin, 2009). Therefore, institutions, scholars, businesses, and other participants have given great
thought to SMEs’ access to dependable funding. The provision of financial emergency loans is perhaps one of the most
popular ones in many jurisdictions due to the funding restriction difficulties encountered by SMEs (Liao et al., 2016; Su
et al., 2021). Due to the government’s inadequate regulatory arrangements, many (SMEs) in China have difficulty obtaining
financing. The beginning of the commercial bank business in China can be traced back to the early 1990s. Administrations
have set up financial inclusion agencies at the regional level to bridge the funding gap for SMEs (Khan et al., 2021).

∗ Corresponding author.
E-mail addresses: d_ly88@sina.com (Y. Liu), adilanchiev@ibsu.edu.ge (A. Dilanchiev), xkf0819@sina.com (K. Xu), aytandilanchieva@yahoo.com
(A.M. Hajiyeva).

https://doi.org/10.1016/j.eap.2022.09.006
0313-5926/© 2022 Published by Elsevier B.V. on behalf of Economic Society of Australia, Queensland.
Y. Liu, A. Dilanchiev, K. Xu et al. Economic Analysis and Policy 76 (2022) 554–567

A deposit insurance relationship consists of the following parties: borrowing (the cash-strapped small- or medium-
sized enterprise), the creditor (the institution), and the guarantee (i.e., the guarantee company). Loans guarantee that
businesses offer credit to SMEs with the assurance that, in the event of a failure, the guaranteeing company would (at
least) cover the financial institution’s losses (Drachal, 2021; Wang et al., 2021b). In exchange for this warranty, SMEs pay
insurance costs to assure businesses in advance of default occurrence. An essential factor in the standard Chinese deposit
insurance transaction is that SMEs provide the company with a predetermined guarantee charge. However, conventional
contracts have two drawbacks. First, the economic burden on SMEs grows directly with the size of the budget gap at the
point of borrowing. Second, guaranteeing organizations have a high risk of default but often receive a small promise price
(Wang et al., 2021a). As an available substitute, outsourced goods supplier (OGS) service agreements and investment swap
agreements are two new main types of financial assurance contractual arrangements developed by Chinese entrepreneurs
to address the limitations of conventional credit information deals and provide alternative funding mechanisms for SMEs
(He and Guo, 2021). According to Olanipekun and Alola (2020), in contrast to the old constant guarantees, SMEs in current
OGS arrangements offer assurance firms shareholdings (i.e., a shared opportunity to purchase a percentage of existing
shares at a predetermined principal amount) in exchange for credit facilities. Many SMEs that previously did not qualify
for credit facilities can now do so, attributable to the two new types of funding (Akpolat and Bakirtas, 2020; Genc, 2017).
Bai and Dahl (2018) found no mathematical reasons for adopting these two new forms of commercial bank contracts
in the deposit insurance trade, despite some possible perceptual justifications for the usage of these new loan promise
arrangements.
According to the agency theory, borrowers (agents) and lenders have asymmetric information (principals). Conse-
quently, much of the information asymmetry is due to lenders’ unwillingness to lend to businesses they deem hazardous.
In such situations, small and medium-sized businesses may struggle to obtain financing. Information asymmetry creates a
moral hazard for lenders when businesses are too engaged. The lenders conceal the risks, which may aggravate SMEs’ lack
of access to finance since SMEs are more reliant on the loan market than large corporations. However, the knowledge gap
between banks and SMEs worsens their position. SMEs have less transparency than banks, which affects their business
reporting and operations. Hence, this study tests the role of SME financing in the business environment and GDP growth.
We examine these connections using econometric techniques and core questionnaires.
Our findings conclude that environmental, social, economic, and entrepreneurial intentions correlate positively with
economic performance in China. There is a strong and positive correlation between assertive environmental and so-
cioeconomic approaches, environmental and socioeconomic issue management, and environmental and socioeconomic
performance, which we have identified in depth. According to our results, external statistics to measure environmental
and socioeconomic success and environmental and socioeconomic risk mitigation do not seem to be related. However,
environmental and socioeconomic management have favorable consequences when using an econometric approach. In
particular, we shed light on the factors influencing environmental and socioeconomic approaches and SME outcomes in
China.
There has been a steady rise in research on the implementation of circular endeavor (CE) practices by SMEs. SMEs (Lu
et al., 2020) are directly impacted by regulatory obstacles, such as administrative processes and expenses, and the paucity
of human resources in their participation in CE activities (Scheitrum et al., 2017).
Researchers have also found that the types of business activities that SMEs currently participate in distinguish what
enterprises see as impediments (such as legislation, administrative processes, or the availability of capital) to engaging
in more extensive business activities. Control and market segmentation have been shown to boost the acceptance of
environmental policies by small businesses, whereas financial restrictions have been shown to adversely affect green
innovation adoption by small businesses (Khan et al., 2020). SMEs’ use of sustainable resource methods has also been
hampered by other obstacles, such as a lack of expertise and outside guidance (Weimer, 2013). It has been shown that
the existing innovation capability in an organization is a driving force for the adoption of eco-innovation methods. Two
things stand in the way of a company’s ability to expand its capacity for innovation. For starters, the cost of investment is
prohibitive, and financing is difficult to obtain. For example, Bera et al. (2021) demonstrated that the absence of financial
assistance from the internal resources/reserves and the state and director of human resource expenditures were significant
obstacles to SMEs implementing CE practices. According to Abid and Alotaibi(2020), environmentalist practices may be
impacted by national economic incentives.
However, Kim (2018) made the opposite argument regarding resource production. Dagoumas et al. (2018) report that
SME size is mainly affected by external financing when provided by classical funders (such as banks) or large funders
(government or EU funding) and that only multiple methods of funding, such as investment capital and equity finance,
can have a beneficial effect on SME growth. According to Wang et al. (2019), it is nearly impossible for small businesses to
adopt resource-saving strategies without government assistance. Dalheimer et al. (2021) show that firm size, institutional
research, and development expenditure influence business adoption.
The next section contributes to SME data—which is still lacking, and more extraordinary efforts are needed to enhance
data collection and prove the funding of small businesses. Comparing requirements research across countries has been
complex because of the disparity in cover, technique, and criteria. China welcomes new attempts to standardize polls,
which might lead to more accurate results. Many funding alternatives are available to SMEs, but non-debt financing is
typically underutilized or poorly tailored. This hinders managers’ capacity to keep up with developments and can be
targeted for data enhancement initiatives. Also crucial is how fine-grained the information may be in terms of data.
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Because of the apparent variation in the SME society, it has long been known that fragmented SME financial data are
helpful in management and research. According to the Chinese government, missing information sources, including their
size, tenure, industry, ownership type, position, and qualitative aspects such as gender, might be collected and published
in the long run.
The remainder of this study is structured as follows: Section 2 presents the literature review. Section 3 discusses the
data and methodology. The results and discussion are presented in Section 4. Section 5 presents conclusions and policy
implications.

2. Literature review

Companies are hesitant to provide loans to small and medium-sized enterprises due to two issues (Le et al., 2021).
The first is the inherent risk. Bank loans from a third party and having the chance to collapse make people more careless
with their spending. The other primary aspect is the adverse selection that takes place. Clients with a worse credit score
and a lower likelihood of repaying their loans are more likely to accept a loan with a lender. Both issues originate in the
communication imbalance between SMEs and financiers (Dong et al., 2020). There are proven supply-side attempts in the
United States to alleviate the informative issue and improve economic determinants, including credit facilities. Lapavitsas
and Soydanthat (2022) show that institutional loans, especially from checking accounts, are becoming a crucial facet of
microfinance in the United States. Loan payments from traditional lenders constitute 26.7% of SMEs’ total funding, with
roughly half of this money being pulled back under outstanding loans (Sharma et al., 2021).
While SMEs in the United States are exposed to a substantial amount of official financing, potential SMEs in China have
limited access to such funds because of the country’s inadequate payment systems. Although China’s export restructuring
has been in place for over 30 years, its four leading regional banks continue to control the vast bulk of its financial
sector(Song, 2020). The problem is complicated by the fact that banking institutions in China are unproductive (Mont
et al., 2021) and have significant prejudice towards financial entities, which central banks opted to ignore in favor of
their larger, more profitable clients (Gerwe, 2021). Another issue is that SMEs often lack the necessary holdings to obtain
bank credit in China, which often requires tangible assets, such as real estate, as security. Furthermore, there is a lack of
diversity in the types of credit intermediaries that can be utilized to fund SMEs. This has led to a decline in the availability
of bank debt for Chinese businesses. For instance, small and medium-sized enterprises are disproportionately underserved
when they receive borrowing from checking accounts. This reasoning is valid for both conventional and impromptu mom-
and-pop shops (Eichengreen et al., 2021). While small- and medium-sized enterprises in China have difficulties gaining
access to conventional finance, the proprietors of these enterprises might have their situation eased by current earnings
developments. Cardholding did not appear in China until recently. In reality, transactions are only given to individuals,
not businesses, and the associated rules permit credit for the spending, as opposed to output, to prevent the misuse of
credit accounts. This causes an unequal distribution of credit because SMEs cannot fully use their proprietors’ financing,
who are only authorized to use it for personal expenses (Jia et al., 2021).
It is essential to reduce the ‘‘rent evaporation’’ that results from bank maldistribution cost-effectively. In other words,
resources can be shifted from wasteful, commercially privileged businesses to competitive but low-income ones (Rempel
and Gupta, 2021). An underlying premise of the preceding reasoning is that debt from credit cards operates comparably
to borrowed funds; therefore, even though lending institutions are not accessible, credit card debt can barely occur.
The availability of financial facilities probably makes consumer debt an appropriate financing strategy for substituting
commercial loans (an essential portion of loans for SMEs in the U.S.) to cope with illiquidity. SMEs regularly confront
circumstances where 10,000 yuan in cash is required for circulation but is unavailable; when funding emergencies
materialize, credit card lines may be employed to remedy the issue (Hyman et al., 2021).
According to Chinese law, transactions cannot be used to make a purchase. It is already criminal by law for business
SMEs to use cards to buy building resources. Fortunately, this rule is seldom followed. Consequently, business owners may
use credit and debit cards to cover unexpected cash flow shortfalls. Nevertheless, now that it is in writing, business owners
of small and medium enterprises should exercise more caution when utilizing personal loans as a funding source. Second,
unlike in the United States, personal bankruptcy is not a legal option in China. This means that debt may be collected as
long as the customer is breathing, even if the debtor defaults. Banking has an inalienable right to manage existing debt.
It may place the defendant’s name on a public access ‘‘hit list’’, which devastates the individual’s reputation. Third, debt
repayment is more likely to occur when SME owners have significant incentives. Finally, when threats are modest, small
business owners often rely on family financing—debt as part of it (Caballero-Morales, 2021).
The setting in which these partnerships occur also affects these capacities and information (Ibn-Mohammed et al.,
2021) since they rely on local cultural, economic, and technical contexts. After consideration, this study attempts
to address concerns about a company’s outstanding that go far beyond mini effects to include national effects that
indicate the influence of individual innovations and enterprises. Their innovative choices and the people with whom
they communicate and collaborate within their environments are part of the integrated system. The knowledge-based
innovation plan includes generating open internal innovation, such as R&D programs or employee training, as well
as public or inter-firm collaborations. Other governmental and private institutions in the research and industry fields
were also included in this study. These alliances, initiatives, and basic knowledge spillovers generated by inter-firm
and organizational cooperation help companies via spatial and temporal aggregate efficiency (Wang and Zhang, 2021).
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To help these partnerships grow, governments can take steps to build innovative and advanced cities. This means that
governments can help these partnerships grow by taking steps to build innovative and advanced cities.
Researchers in the innovation networks field have outlined the attainment of objectives in commercial, governmental,
and SME innovation (Stiglitz, 2021). The study focused on the broad forces that enable the dynamic development trajectory
in the respective settings, with the former identifying the representational, technical, and administrative determinants of
innovation.

3. Data and methodology

3.1. Study data

Two secondary data sources were used in this study: the Global Entrepreneurship Monitor (GEM), a group of people
who focus on how people start businesses around the world. This study examined how SME technical shareholders in
China chose to obtain representative and informal funding, giving customers the most recent data. We begin with technical
businesses in China as the first on our list of small businesses in the country. The study concentrates on the collection
methods and does not spend too much time on other parts of the training program. Technical SMEs ensure that all
information in a piece is correct. Some small businesses in China work in groups and take on large projects. Finally,
we obtained data from the World Bank’s Doing Business database to use as control parameters for our project.

3.2. Variables of study

Researchers in this study consider six different aspects of financial selection when it comes to funding: (1) series or
other financial institutions; (2) savers who live alone; (3) administrators of programs, grants, or donations; (4) family
members; (5) neighbors and coworkers; and (6) employers and coworkers. The café operators’ assumptions of financing
through specific channels, rather than their actual funding decisions, are the source of these differences. As eatery
owners’ real financial options could not be observed with any regularity, this study relied on their assumptions instead
of actual data (i.e., for each financing channel). Otherwise, all five factors were set to zero. Next, financing options were
classified into formal and informal loans based on several variables. Banking institutions such as public and private banks,
exploration assets, public programs, efforts, and bursaries were all considered conventional sources of financing, whereas
casual finances included family members, neighbors, and employers (INF). The SME owners’ expectations of receiving
traditional values were measured using three different values: 0, not predicted; 1, meant somewhat predicted; 2, meant
greatly predicted; and 3, completely expected.

3.3. Study model measurements

A multiple regression model was used in this study because financial options are both excellent and varied. IBM Spss
Version Package version 27 was used for data processing (SPSS). According to (Ebert and Welsch, 2004),

GDPi,t = β0 + β0 CRED + β0 Tax + β0 INSOL + β0 BE + β0 GINI + β0 FINEXP + εi,t (1)

p (Financing Choice)
[ ]
Financing expectations = ln (2)
(1 − p (Financing Choice))
To calculate GDP, we need to add up all the components of GDP (i.e., GDP, CRED, Tax, INSOL, BE, GINI, FINEXP, and).
Finance expectations = ln (p (Financing Option))/(1 − p (Financing Option))]. lnAccess to relevant technology, the high
cost of product development processes, and the absence of effective marketing tactics are fundamental challenges for
small and medium-sized enterprises (SMEs) to fight in today’s global marketplace. In addition, there is a lack of software
installation financing for ERP systems and a lack of technology gaps between marketing and production operations
(Sovacool et al., 2016). Business owners in underdeveloped nations face various challenges, including a shortage of
competent staff, an inability to reach international markets due to either too onerous or ineffective regulations, and a
scarcity of financial resources. Midsized management teams in China are under tremendous pressure to reduce costs,
improve quality, and deliver goods timely. In addition, small and medium-sized businesses that work in construction are
often forced to work in an unfriendly environment (Fusco, 2015).

3.4. Measurement model estimation

A binary logistic approach was applied to elucidate the findings of the study. By assigning data to certain classrooms,
regression helps students learn about categorization problems. It is possible to use the convergence input vector to map
the marginal probability predictor to data with any value between 1 and 2. Alternatively, the following equation can be
expressed:
[ ]
1
f (x) = ln (3)
1 + e(x)
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This scenario has two possible outcomes: no injury (0 is used here) and injury (1 is used here). Consequently, the result
is rounded to either 1 or 2. Logistic regression analysis was employed instead of the average absolute error for a constant
reply, and the cost function of the bridge or log loss was utilized. A value can be calculated for y = 2, where zero is
expressed as follows:

st (h0 (x) , y) = −log (h0 (x)) if Y = 1 (4)

cost (h0 (x) , y) = −log (1 − h0 (x)) if Y = 0 (5)
For the output, it is best to let the tree grow until only a small amount of information or only one data type is included.
Using the tree as a safety net, we can exclude low-value nodes from the model, preventing it from succumbing to its
computational complexity. A normal combination of predictor variables is described using a median estimator, which
yields the 51st median of the covariance. As with previous quantile estimates, we may use any quantile in the covariance
of the 23rd or 76th quantiles to estimate the model variables. Consequently, if a 26th quantile analysis is used to show
the level of the empirical model (Zhou et al., 2017), controlling for unseen country diversity, the 25th quantile sums
the sampling probabilities of the dependent variables. Consequently, the following equation for the fixed effect of the
longitudinal regression is considered:
( )
yi
Quant θ = = x́i βθ (6)
xi
Using a fixed-effects longitudinal estimation technique with considerable serial correlation for unknown variables is
a significant issue (Chang and Hu, 2019). However, with infinitely many single units, approximators are ineffective.
However, the number of data points per bridge unit remains constant. In parametric regression analysis, the inferior
approaches used to reduce undiscovered multiple regressions are not possible. This is why the literature on longitudinal
quantile regression’s fixed effects is so thin (Zhou et al., 2006a).
∑ ∑
min θ |yi − xi β| + . (7)
yi≥x′iβ yi≤xiβ 1−0´/y
i−xi β

The overall influence of individual characteristics on the regressors cannot be estimated using characterized equations.
The stimulating impact of large numbers can be estimated using quantile estimation. This is not true for the least-squares
estimate because it can only estimate the effect of the average numbers. The following formula is used for estimating the
quantiles:

FE2it = δ FORαt 1 INFtα 2 GINtα 3 CTRLαt 4 INStα 5 GDPtα 6 µit (8)

Long-term founder studies examine carbon dioxide, human capital, wealth creation, trade openness, and fiscal policies
(Munda and Nardo, 2009). The DOLS (dynamic ordinary least squares) method was also used in this study. Therefore, the
transverse quantile can be defined as a function of time.
The following longitudinal linear relationship is considered.

FE2it = α0 + α1 FORit + α2 INFit + α3 GINt + α4 CTRLit + α5 INSit + α6 GDPit + µit (9)

The Pesaran cross-sectional test revealed that the variables used in this study had sufficient merge dependence to reject
the null hypothesis. As a result, dual analysis assists in determining the appropriate unit root method. In terms of the
long-run founder association among dioxide contamination, human resources, job prosperity, relationship real exchange
rate, real exchange rate growth, bioengineering, and capital formation, we used the transverse conventional least squares
method. Consequently, the transverse quantile is as follows:

θit (τ /xit ) = βiτ + β1τ FORit + β2τ INFit + β3τ GINt + β4τ CTRLit + β5τ INSit + β6τ GDPit + µit (10)
Parametric analysis of the predictor variables may also be used to calculate the aspect functions depending on other
factors, such as GDP and time.
θ0.10 (EP2it ) = α0.10 + α0.10,1 FORit + α0.10,2 INFit + α0.10,3 GINt + α0.10,4 CTRLit + α0.10,5 INSit + α0.10,6 GDPit + µit (11)
Ultimately, an analysis of the equality of the slope coefficient shall be carried out to determine if there is a meaningful
difference between the slope coefficients of the varied quantiles, such as the quantile regression equation, which can be
stated as given below when considering the inter-quantile estimation between τ = 0.10 and τ = 0.50.
θ0.50 (FE2it ) = α0.50 + α0.50,1 FORit + α0.50,2 INFit + α0.50,3 GINt + α0.50,4 CTRLit + α0.50,5 INSit + α0.50,6 GDPit + µit
With fixed- and random-effect regression models, the main concern is that the addition of a large number of reference
factors raises the issue of accidental variables. Therefore, when the range of possible individual units reaches infinity,
the estimated body is deemed untrustworthy. However, each bridge unit had several observations. Quantile regression
does not allow inferior approaches to reduce observable fixed effects, which limits the amount of research available on
fixed effects. It is a good idea to use this method, which (Wu et al., 2018) can be used simultaneously to observe residual
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Table 1
Descriptive Statistics.
Unit SME formal financing SME informal financing Business environment GDP growth
Min 13.88 11.88 28.81 50.03
Max 3580.88 1114.6 1.08 5478.4
Kurt 31.02 3.08 3.03 1.9939
SD 314.50 51.21 18.60 38.12
Mean 3611.8 6613.13 7011.50 314.71
Var 1.21 1.02 2.14 1.81

Table 2
Correlation estimates.
FOR INF BE Gini GDP
SME formal financing 1
SME informal financing 0.0521* 0.3151 0.0266 0.56478 0.12673
Business environment 0.2140* 0.1641* 0.0321 1 0.54321 0.67893
Gini 0.0279* 0.2541* 0.0181* 0.22541 0.23456
GDP growth 0.2081* 0.2629* 0.3713* 0.33864* 0.43267

Significance at p-value < 0.05

serial correlation and the factorial effects for different parts of a distribution. It is also noteworthy that penal terms are
used to handle the calculus difficulty of accurately estimating a vast number of quantities, in which case, the values are
approximated as follows:

θ0.50 (FE2it ) − θ0.10 (FE2it )α0.50 − α0.10 + α0.50 − α0.10 (FORit ) + α0.50 − α0.10 (INFit ) + α0.50 − α0.10 (GINt )
+ α0.50 − α0.10 (CTRLit ) + α0.50 − α0.10 (INSit ) + α0.50 − α0.10 (GDPit ) + µit (12)

Eqs. (5) and (8) define the regression interaction coefficients, which provide an inter-quantile estimate and demonstrate
the variations in the assumed quantile of 0.10 and 0.50. By contrast, we used the Wald test to examine the equivalence
of the slopes of each coefficient. Consequently, the null hypothesis of equality and other slope indices for = 0.10, 0.20,
= 0.10, and 0,50, and 0,10 and 0,70, as well as the null hypothesis of equality and = 0.10 against the null hypothesis of
equality.

4. Results and discussion

4.1. Empirical outcomes

After a novel approach was developed based on the adapted model, product changes were made in response to
consumer preferences (Meng et al., 2019). This economic path leads to further consolidation of the new value offer and the
emergence of additional clients in the new business beyond the core customers, who first recommended different apps.
Consequently, co-development partnerships represent the primary source of value generation at this juncture (focused
on co-testing and product validation). Leveraging daily situations (particularly modularity in R&D) as newly established
human and cerebral occupations is vital for assuring shareholder value characteristics since reaching these new markets
requires the development of new activities such as ad hoc advertising and sales (Zhou et al., 2006b). Also relevant were
Bartlett’s reliability test results, with a p-value less than 0.02 relevant to the behavioral changes in Table 1. All of the
factors’ sample values were over the 0.50 threshold.
Further, when coupled with novel pricing and agreement solutions, expanding into new market segments and adopting
a modular approach to developing new products emerge as critical causes for offsetting the large carrying expenses. About
60% of the SMEs in our study said they made no money from exports, whereas 2% said they made all their money from
overseas. While 15% of total sales was the average for the entire group, this number increased to 39% for the SMEs that
did at least some overseas business. In addition, 20% of the surveyed SMEs claimed to be part of a business group (BG);
43% were associated with a local BG, and 57% with an overseas BG (Sueyoshi and Goto, 2012). This research reveals that
30% and 40% of the surveyed SMEs in nations such as Sweden, Germany, Iceland, and Danish were active participants in
BGs.
In comparison, less than 10% of the population in nations such as West Albania, Ireland, Bulgarian, and Nicosia self-
identified as belonging to a BG. We then gradually introduced the variable. Before anything else, we factored in BG
connection to calculate the indirect impact of BG membership on overseas sales volume (Model 2). Based on the findings
obtained, SMEs’ export volume was favorably correlated with their connection with global BGs (α =.81, p = .001, 95% CI
α = 0.71, 0.92) but adversely correlated to their connection with local BGs (= −.19, p = .05, 95% CI α = −0.34, −0.04).
To make sense of these findings, we used Model 3 in Table 2 to estimate the average marginal effect of BG connection on
overseas sales volume for unattached, locally Hud, and internationally Hud SMEs (Ogundimu and Collins, 2018).
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Fig. 1. Empirical estimate output.

The adaptive process has been described by (Farzanegan and Raeisian Parvari, 2014). As shown in Fig. 1, as opposed
to female-owned SMEs, BG membership led to an 11.7% rise in the foreign sales volume of BG-affiliated SMEs. However,
compared to businesses that were not linked to national BGs, foreign sales fell by 2% when national BG membership was
included. As such, our results lend credence to H1a. Our findings also reveal that firm age (α =.14, p = .05, 95% CI =
0.02, 0.26) and institutions (α =.03, p.01, 95% CI = −.05, −.03) moderate the impact of global BG membership on foreign
sales diversity (α = −.21, p = .001, 95% CI = −.29, −.13). Fig. 1 shows the effects from the mean minor effect of 0.12 for
SMEs with ten workers to a mean marginal effect of 0.02 for SMEs with 250 workers. Consequently, the influence of BG
membership on the diversification of exports for the largest SMEs is negligible. Therefore, we find that H2b is correct,
but only for BGs operating on a global scale. On the other hand, compared to SMEs with a company age of 5 years, the
typical marginal impact of global BG connection on foreign sales diversification grew to 0.13 for SMEs with a company
age of 50 years. Therefore, older SMEs seem to gain more from their worldwide BG affiliations in diversified foreign sales
than young SMEs.

4.2. Regression analysis

Due to these findings, consumers and other parties may be encouraged to further adopt CE ideals, which may lead
to more tremendous advantages in the context of ecological, social, and systemic issues. Research reveals that variance
plays a role in the event and selects equations when it comes to micro- and firm-level variables. Smaller companies in
the industries under consideration are less likely to participate in CE activities, and the same is true for companies that
invest only an insignificant portion of their R&D revenue. According to empirical research, small businesses are less likely
to innovate than larger ones (Wang et al., 2018). In keeping with earlier studies, even with the availability of knowledge
about financing mechanisms, lower volatility and the usability of state aid have a substantial impact on the predicted
direction for SMEs implementing a CE marketing strategy. As a result, the green agenda is hampered by the variety
in society. Because of this diversity, SMEs, on the other hand, can shift their focus to more environmentally friendly
production methods (see Table 3).
Nevertheless, as shown in Fig. 2, the impact becomes less noticeable as the company ages. This finding contradicts our
hypotheses, so we must rule out an alternative hypothesis. Finally, we discover that the median residuals of BG affiliation
on direct investment decrease with increasing levels of institutional support. The highest median negligible impact of
global BG affiliation on foreign sales diversification among SMEs in their home countries is under support and funding.
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Table 3
The binary logistic regression output.
Estimating the nexus between constructs GDP growth
Level 1 (n = 334)
Intercept −0.01271
FOR −0.01232
INF −0.01621
BE −0.01231
GINI −0.03451
Control −0.00339
INS −0.01371
Level 2 (n = 113)
Intercept 0.003111
FOR −0.01361
INF 0.023133
BE 0.014928
GINI −0.00191
INS 0.010471
Level 2 (n = 60)
Intercept −0.0088
FOR −0.01449
INF 0.009641
BE 0.001140
GINI 0.351188
INS 0.290350

Significance at p-value < 0.05

Fig. 2. SMEs financing under sample-period.

This suggests that the need for infrastructure that enables connections, such as BGs, is less with the current governmental
assistance. Thus, we validated our prediction
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Table 4
Regression analysis (Business environment).
Business environment GDP growth
B (Wald) EXP (B) B (Wald) EXP (B)
Intercept 0.097 1.07 0.904 1.05
FOR 0.453 1.04 0.967 1.02
INF 0.735 1.13 0.542 1.02
GINI 0.519 1.22 0.407 1.26
INS 0.446 1.147 0.559 1.59
GDP 0.908 1.18 – –

A firm’s microeconomics appears to play a vital role in the company’s choice to pursue an SME business environment.
Specifically, the use of renewables by SMEs has a critical and thorough impact on their operations. This shows that
economic growth is occurring today (Tapia et al., 2016) even though renewable energy sources have been recorded in
the literature. The choice to participate in SME activities is impacted by resource productivity, which is helpful, but
not decisive. Broader development principles are being promoted in the country, affecting ecological manufacturing
(Taghizadeh-Hesary and Yoshino, 2019). However, our research has shown contradictory results (see Table 4).
According to Pachauri and Spreng (2004), official incentive structures may encourage environmentalists, but they
conclude that the country’s ecosystem has a detrimental impact on resource production. Even in the context of increased
knowledge related to financial instruments, a low circumference rate reduces the possibility of embracing EXP activity.
However, because environmental factors may have been overlooked, the usefulness of business indicators has been
questioned by Taghizadeh-Hesary and Taghizadeh-Hesary (2020). Possible factors, such as enterprises’ difficulties in
adopting an activity connected to the EXP, show that company variability has an impact. However, the most critical
barrier is a lack of experience; EU environmental laws, such as the SME environment, may be a source of danger for
SMEs (Bostian et al., 2016). According to the findings, companies already aware of the benefits of becoming green are
not discouraged by the difficulty of implementing new processes or the high cost of meeting regulatory requirements.
Businesses are unsure how to use green manufacturing methods or new technologies because they are unfamiliar with
them.

4.3. Quantile regression analysis

We also tested how our findings may change under different circumstances using a different estimation strategy and a
different metric of internationalization at the company level. We also evaluate a company’s willingness to sell to foreign
clients (Taghizadeh-Hesary and Yoshino, 2015). We used this alternative index of globalization in a set of logit studies
to verify our hypotheses. Table 6 presents the findings of the regression model. Model 8 demonstrates that compared
to single SMEs, those linked to international BGs are more than twice as likely to export (OR α = 2.13, p. = 001, 95%
CI = 1.88, 2.42). However, we discovered that small and medium-sized enterprises (SMEs) connected to local BGs were
considerably less likely to export (OR α = 0.84, p = .05, 95% CI = 0.73, 0.97). Firm size has a negative significant link
to the international BG association (OR α = −0.86, p = .01, 95% CI = −0.77, 0.95) according to Model 9’s results, while
institutional support has a positive and statistically significant relationship with it (OR α = −0.97, p = .05, 95% CI =
−0.94, 1.0). This suggests that the size of the company’s country and the strength of its institutions are key determinants
of the impact of BG membership. Consequently, the consistency of our findings is confirmed by the findings from the
alternative measure of company internationalization and the alternate technique of estimation, both of which yielded the
same results as those presented in the fraction regression analysis (Okushima, 2019)—see the quantile regression results
in Table 5.
Table 5 shows the link between psychological elements and their impact, as well as the cause-and-effect relationship,
reducing, reusing, and recycling (the 3Rs) adopted by each SME, as shown in Table 5. The key concepts surrounding
reduction are reusing, rebuilding (extending the lifetime of items), reducing waste, preventing resource usage, or
conserving global resources. A repurposed item is one that has been repurposed and reused in the past, as opposed to
one that has been thrown away. Recycling, remanufacturing, or reusing trash are all forms of recycling, and increasing the
lifespan of goods via 3R practices and minimizing waste of resources have been shown to play a crucial part in the shift
toward a CE system (Jamali et al., 2021). It was crucial to simplify terminology to make the three pillars’ meaning clear
for analysis: Consumers should take precedence over creation, which uses more natural resources. Reusing and recycling
are commonly confused, even though they are quite different activities and have different results, as shown in Table 6.

4.4. Robustness analysis

Small- and medium-sized enterprises have generally endeavored to adhere to the three business environment ideas
of reducing, reusing, and recycling (3R), as seen in case studies (Cline et al., 2020). Conversely, the circular endeavor
focuses on a specific facet of GDPG, whereas other companies strive to include all three pillars of CE throughout their
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Table 5
Quantile regression analysis.
Variables 0.1 0.25 0.5 0.5 0.9 OLS
FOR 0.0765*** 0.0654*** 0.0354*** 0.0352*** 0.0346*** 0.066***
(0.001) (0.01) (0.003) −0.002 −0.002 −0.002
INF 0.02*** 0.0166*** 0.0136*** 0.0133*** 0.02*** 0.0138***
−0.0056 −0.045 −0.035 −0.036 −0.0056 −0.035
GINI 0.430*** 0.441*** 0.421*** 0.425*** 0.430*** 0.421***
−0.0401 −0.0402 −0.0201 −0.0212 (0.0401) (0.0201)
INS −3.24e−05*** 0.045*** 0.045*** 0.048*** −3.34 0.045***
(2.26) (4.54) (2.00) (2.00) (2.26) (3.00)
GDPG 0.024*** 0.323*** 0.665*** 0.611*** 0.024*** 0.335***
(0.012) (0.002) (0.001) (0.002) (0.012) (0.001)
PCI 0.0276*** 0.00897*** 0.0586*** 0.0586*** 0.0276*** 0.0586***
(1.98) (1.54) (1.10) (1.10) (1.98) (1.10)
Constant −5.002*** −5.021*** −3.021*** −3.001*** −5.002*** −3.021***
(−0.552) (−0.232) (−0.235) (−0.268) (−0.567) (−0.256)

Observations 472 472 472 472 472 472

Table 6
Quantile regression analysis.
Variables 0.1 0.25 0.5 0.5 0.9 OLS
FOR 0.0564*** 0.0543*** 0.0331*** 0.0165*** 0.0354*** 0.023***
(0.002) (0.02) (0.003) (0.002) (0.002) (0.002)
INF 0.0374*** 0.0154*** 0.0136*** 0.0133*** 0.02*** 0.0138***
(0.003) (0.032) (0.035) (0.036) (0.0056) (0.035)
GINI 0.422*** 0.441*** 0.421*** 0.425*** 0.430*** 0.421***
(0.040) (0.0402) (0.0201) (0.0212) (0.0401) (0.0201)
INS −3.205*** 0.045*** 0.045*** 0.048*** −3.34* 0.045***
(2.047) (1.032) (2.003) (2.032) (2.2432) (2.003)
GDPG 0.025*** 0.321*** 0.665*** 0.611*** 0.024*** 0.335***
(0.011) (0.001) (0.001) −0.002 −0.012 −0.001
PCI 0.0243*** 0.0083*** 0.0586*** 0.0586*** 0.0276*** 0.0586***
(1.026) (1.321) (1.154) −1.154 −1.234 −1.143
Constant −4.003*** −3.024*** −3.021*** −3.001*** −5.002*** −3.043***
(0.587) (−0.232) (−0.235) (−0.268) (−0.587) (−0.232)

corporate strategy. However, a deeper examination reveals that SMEs are more focused on a single component of CE while
simultaneously adopting (or at least not ignoring) the overall FOR concepts. Additional confirmation comes from small
and medium-sized enterprise (SMEs) businesses. The 10R models (Drescher and Janzen, 2021) are used to re-evaluate
the models and still show an alignment towards a single or comparable concept. Small- and medium-sized businesses
(SMEs) may have different structures and operating scopes than more prominent corporations. In light of this conclusion,
small businesses considering a move into INF should focus on building a single notion of the business environment rather
than tackling the full scope of SMEs from the outset. This might help businesses in the INS industry determine how to
run their businesses in that field. It is not enough for them to be enthusiastic, imaginative, and brave leaders; they also
need to bring in information, data-driven choices, education, and skills at the organizational level. It is essential to use
business principles as a rational solution to this well-known issue. Because of this, executives must first comprehend the
GDPG idea, as well as the complexities of the industrialization and urbanization arenas, to develop a realistic and lasting
business solution. Businesses must recognize the significance of external elements, build partnerships with stakeholders,
and take the lead in the exchange of information in order to achieve improved processes within the robustness analysis,
as presented in Table 7.

4.5. Discussion

In 2007, China stressed that it would do everything it could to help small businesses grow when the prevailing policy
changes started (Färe and Grosskopf, 2010). The main goals of management during this period were to enhance planning
and management activities, eliminate structural inequalities, make it easier for everyone to compete on an equal footing,
and encourage novel technological ideas. Due to these changes and efforts, Chinese businesses began to grow rapidly
in volume, multitude, and revenue (Wang and Zhang, 2021). For example, environmental motivation, INF, and INS are
favorably affected by social pressure. There is a strong relationship between social stress and green market mechanisms
and FOR, but it has a lesser effect on other components. Ecological economic incentives are directly affected, which is
the only way to do so. Social commitment and INS are impacted by societal pressure to a similar extent. Mitigation and
INF are particularly vulnerable to social pressure. These findings are consistent with those who found that social pressure
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Table 7
Robustness test.
Variables 0.2 0.26 0.4 0.4 0.8 OLS
FOR 0.0574*** 0.0541*** 0.0332*** 0.0163*** 0.0345*** 0.025***
(0.003) (0.06) (0.004) (0.003) (0.004) (0.001)
INF 0.0377*** 0.0159*** 0.0132*** 0.0134*** 0.03*** 0.0136***
(0.002) (0.033) (0.031) (0.037) (0.0057) (0.034)
GINI 0.425*** 0.434*** 0.427*** 0.445*** 0.431*** 0.422***
(0.041) (0.0401) (0.0202) (0.0216) (0.0402) (0.0202)
INS −2.234*** 0.042*** 0.085*** 0.042*** −2.37* 0.047***
(2.044) (1.033) (2.004) (2.034) (2.2433) (2.002)
GDPG 0.035*** 0.323*** 0.637*** 0.613*** 0.034*** 0.333***
(0.012) (0.003) (0.002) −0.004 −0.013 −0.002
PCI 0.0223*** 0.0085*** 0.0589*** 0.0585*** 0.0274*** 0.0587***
(1.022) (1.322) (1.152) −1.155 −3.233 −2.146
Constant −3.007*** −2.026*** −2.024*** −2.005*** −4.032*** −2.047***
(0.589) (−0.235) (−0.233) (−0.264) (−0.584) (−0.233)

had a favorable impact on green price signals and a negative effect on commitments (Caniëls et al., 2021; Wang et al.,
2022). Both dimensions benefited from social pressure, as seen in our findings. Several past studies have also confirmed
the importance of continued efforts and economic forces by legal and financial organizations to impose peer pressure.
According to experts, many organizations can help enterprises move to the CE. The framework is supported and has an
essential moderating effect in the smooth transition from FOR to INF, according to the findings of Pesaran and Shin (1998).
There is a clear correlation between official ecological incentive programs, public support for environmental stewardship,
and other sustainability principles such as INS and INF certification. Our results indicate that green monetary factors are
a precursor to continued workplace efforts. The subsidies and tax advantages for adopting CE practices, the willingness
to pay a higher price for green goods, and the provision of recycled waste at a more affordable cost may help increase
sustainability goals. Considering these results, it is clear that green monetary factors are essential for advancing CE shifts.
Financial incentives may have a significant impact early in the process of implementing a divergent shift (Samargandi
et al., 2020). According to Xu et al. (2020), green motivation is essential for shifting to CE.
Furthermore, according to the findings of this study, environmentalist dedication has a positive effect on supply
chain risk management SCRM and sustainable supply chain design SSCD. However, the favorable effect on SSCD was
approximately twice as great as that on SCRM. Going green in small- and medium-sized enterprises (SMEs) can lead to
increased green power use, selling, transportation, and methods to reuse and recycle substances, as well as the formation
of waste goods categorization, reuse, and processing centers. Finally, our data confirm the importance of performance
measurement and SSCD in business development. This study found that both INF and INS had an effect on SMEs’ capacity,
which is consistent with our findings. However, our findings contrast with those of Galvao (2009) in that they stress that
FOR has a nearly two-fold impact on CE capacity compared to INS. This shows that SMEs cannot overlook the strategic
importance of INF in developing SMEs’ business capabilities. Stakeholder participation is critical in implementing CE
practices such as recycling, reusing, and clean technology via knowledge transfer and organizational learning. The SME’s
mechanical input per product, use of fuel, reuse of packaging, cleanliness and residual substances from machines, and
trash recycling can be reduced by improving relationships with SSCD that is more concerned with sustainability than the
SME is now.

5. Conclusion and policy implications

A business index, on the other hand, improves both the formal and illegal lending of small businesses in the fast-food
industry. Establishing an index to measure the ease with which new businesses may be evaluated demonstrates that
capacity-building encourages the growth of new businesses. An increase in the number of great restaurant openings in
the United States may suggest a more substantial business environment when a firm index starts. Many people might
join, which could lead to intense financial rivalry. Because of the high level of business rivalry, SME owners may be
more likely to seek informal financial assistance than government aid. Banking firms are likely to expect high-quality
buyer proposals in a competitive world. It has been shown that small and medium-sized businesses (SMEs) in the hotel
industry commonly fail to provide banks with enough capital. This may have a detrimental influence on the chances of
receiving state subsidies. More scientific evidence and reasoning should be welcomed in future studies.
This study conceptually strengthens our understanding of agency problems in formal and informal funding choices for
businesses. According to the current study, learning from an individual’s macro environment may help lessen asymmetry
in the financing process. The demand for irregular loans decreases if more authorized loans are accessible. This study
contributes to the body of knowledge on small-company financing by examining the effects of formal and informal eatery
loans in different macroeconomic contexts. Restaurant owners’ anticipation of conventional financing has increased due
to progress in the finance system and fiscal policy at the macroeconomic level. These findings suggest that the need for
loans would decline because of the many conventional external loans predicted in an advanced economy. First, this study
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is the first to deconstruct small restaurants, focusing on official funding and social help. Therefore, this study adds to the
literature on small businesses by helping small business owners better understand how to obtain money.
In addition, the findings of this study have strategic implications for SMEs in the food industry in terms of formalized
loans from governments. Researchers have found that politicians should closely analyze their country’s official and
informal lending policies to develop financial plans for small businesses (particularly restaurant SMEs). SMEs in emerging
economies face significant challenges when accessing capital, so policies should concentrate on creating and developing
nations’ financial systems and tax legislation. SME owners, especially restaurant owners, will benefit from learning about
the usual expectations of SMEs regarding official and unofficial funding. Even though these owners are open to investment
from any source, they may make decisions based on the specific business environment explored in this research. Owners,
for example, should endeavor to eliminate information asymmetries that may limit their access to conventional finance
sources in times of low market stability. However, official money should take precedence over non-official financing if
the money system is properly formed and enlarged.
This study has several limitations, including the use of unilateral, ego-financing solutions at the outset. Future studies
can use a genuine market report set to evaluate capital structure financing options. There was also a significant reduction
in the number of data points available at the higher levels of the predictor variable. The reliability and statistical
evaluations may be improved if a future study collects a larger and more valuable dataset. Third, this study concentrates
on restaurant data because other small businesses in the hotel and tourist industry are prohibited from collecting data.
Despite this, businesses have considerable sales. After a few years of substantial progress in SME finance, the emerging
economic ramifications of the COVID-19 outbreak have drastically changed capacity-building aspirations. This outbreak is
an unprecedented public health crisis. Worldwide, economic calamity is sown, towns are devastated, and leaders are in a
precarious position. Many changes have occurred in small companies and entrepreneurial worlds. However, their capacity
to obtain short- and long-term financing is severely limited.
The sluggish trade, business flow, and distribution network reconfiguration in the next few years might have a negative
effect on the provision of loans and other kinds of finance for small and medium-sized enterprises (SMEs). The degree
to which small and medium-sized businesses (SMEs) can benefit from digital media, especially in terms of external
investment, is still unknown. Therefore, it is essential to focus on SME funding patterns and enhance their scientific basis.

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