It is well established that SMEs are the central participants in developing economies that urge researchers to invent and apply several policies to promote small- and medium-sized enterprises’ development and enlargement (Rupasingha and Wang, 2017). However, the recent world economic situation has pointed out that SMEs’ access to finance is a vital pillar to identify SMEs’ sustainable firm performance, in particular labor productivity (Dollar et al., 2005; Ayyagari et al., 2008).

A large body of the literature acknowledged that access to finance accelerates enterprise-level investments and expedites tangible and labor capital aggregation, as well as the modernization and adoption of advanced technologies, affirmatively influencing enterprise productivity and growing firms’ productivity (Beck et al., 2000; Redmond and Van Zandweghe, 2016; Giang et al., 2019). It is conceded as a key pillar in stimulating firms’ growth and sustainability through investing in both ongoing and novel projects. In particular, firms will finance in a venture where the forecasted profit surpasses the expenses. Nonetheless, firms can make an optimum investment when they do not encounter liquidity constraints linked to their productivity (Hallward-Driemeier et al., 2006; Hoewer et al., 2012). On the contrary, several literatures highlighted that lack of access to external finance may lead to lower productivity and create obstacles in the larger participation of firms. The viable reason for the insufficient possibility of access to finance is due to the absence of information symmetries between lenders and borrowers, even though confidential data or information is available to the borrowers regarding firm quality. Credit rationing in the market may happen due to this unavailability of access to finance (Craig et al., 2007). In this scenario, Smaller and newly established firms may apply lending instruments such as fixed-asset collateral agreement and externally amended financial statements to signal firm quality when financial institutions have mere information about firms’ operating activities (Mwangi, 2008). In this context, small and medium-sized firms may depend on exports on the unavailability of the lending instrument to exhibit firm quality since this may signal better quality to invest.

Therefore, in this regard, whether firms have good quality to finance is complicated to analyze the relationship between productivity and credit access as the international entry of SME, via international market sales information, may show competitiveness and efficiency of SME. A firm’s exporting operations, or export sales percentage, either an indirect or direct form could consider measuring firm quality (Myles Shaver, 2011; Love and Roper, 2015; Manova et al., 2015). Within the scenario of imperfections and information asymmetries in the capital market, it may reduce the negative effects of financial constraints on labor productivity. The rationale for this probable outcome is that productivity is increased as a consequence of up-rising exporting operations since international markets have tougher competition that may give momentum to firms to develop both processes and products to achieve competitive advantage (Ganotakis and Love, 2012).

Furthermore, access to finance plays a crucial role in achieving business objectives such as firm performance and sustainable growth (Shariff et al., 2017; Chima et al., 2021). González Martinez (2014) along with De Vries and Duque (2018) agreed with (Shariff et al., 2017) and showed that SMEs’ success and sustainable growth were mostly driven by easy access to finance. Han and Gu (2021) concluded financial inclusion; external finance impacts are significant and positively associated with innovation performance of Chinese high-tech firms. Again, Canton et al. (2013) and Hewa Wellalage et al. (2020) mentioned that national macroeconomic conditions, national financial sector development and regulation, and the quality of national institutions influence both enterprises’ access to credit and firm performance. Ferrando and Ruggieri (2018) argued that in Euro zones, access to external finance is not only a constraint but also negatively associates with the firms’ financial structure and the overall productivity factor. Although according to the credit disbursements for SMEs in Bangladesh are noticeably improved, more than 70% of SMEs still have no access to formal funding (Alauddin and Chowdhury, 2015). Among the companies polled, 68.6% of small- and 44.7% of medium-sized companies are restricted by financial resources (Hubbard, 2012). A study undertaken by IFC (2013) indicates the credit gap in current outstanding SME loans is 1.8 trillion USD (equivalent to 2 trillion USD).

There is still a large credit gap and unmet demand for formal credit in Bangladesh, even for those who have access to it. So, therefore, access to external finance for most of the Bangladeshi SMEs is still a far cry. A few research conducted to investigate the relationship between access to finance and SMEs in Bangladesh. Aziz and Siddique (2016) revealed in their research that access to external finance represents a central pillar for SMEs’ growth in Bangladesh. Hossain et al. (2018) discussed some solutions to mitigate credit risk–credit supply gap to develop SME performance in Bangladesh. However, the association between financial access and firms’ quality and how their interaction affects firms’ performance via labor productivity are still untapped. Moreover, these above-mentioned studies did not apply novel econometric method often consider for designing pragmatic policy recommendations. Therefore, this article tends to overcome this gap.

From these above-mentioned viewpoints, this article aims to establish the causal effect of both access to finance classified as financial accessed through bank loan acceptance and financial obstacle through owner’s perception, and firm quality denoted as export sales; on SME labor productivity, respectively, in Bangladesh. It is mandatory because SMEs encounter poor productivity issues as crucial challenges in lower- and middle-income countries. This article also studies the separate effects of financially accessed direct and indirect export-oriented SMEs on labor productivity.

The contributions of this article are multi-fold. Different from prior studies, this is the utmost and pioneering study that investigates the interaction between access to external finance and export sales, and labor productivity nexus in a cross-sectional framework in the context of Bangladesh. As SME can be credit accessed, having good investment projects is probably vital to enhance firm productivity via export sales and can alleviate the negative impact of credit constraints on labor productivity successively (Bellier et al., 2012). Second, it examines the individual impact of indirect and direct export sales on credit-accessed SMEs’ labor productivity.

Third, the incorporation of treatment effects via the propensity score matching (PSM) methodology makes a significant contribution to our approach. Sample data are used to develop comparable observations by SMEs and access to external finance to assume a treatment’s causal effects in an event and thus to alleviate the endogenous problem due to selection bias. The simultaneous interplay between access to external finance and firm productivity can reduce self-selection, as is the case in PSM. Finally, this present article extends extant literatures in a number of ways by examining interaction between access to external finance and export sales, and labor productivity in several aspects. The theoretical framework constructed captured core concepts of the association between access to finance and firm performance. Then, we investigate empirically the theoretical conjectures and determine the impact of access to finance on SME labor productivity, as well as the impact of exports through different channels.

The rest of the article is organized as follows. Section “Review of Related Literature and Hypothesis Development” presents a review of related literature and hypothesis development. Section “Data, Variables, and Empirical Model” lays out the data, variables, and empirical model. Section “Estimation Results” presents estimation results. Section “Discussion and Policy Implications” presents discussion and the policy implications. Section “Conclusion” concludes with limitations and avenues for future research.

Small- and medium-sized enterprises have become the major factors in the Bangladesh economy by creating income-generating ability and improving competitiveness which has a direct impact on productivity (Carree and Thurik, 2010). However, obtaining loans from financial institutions to manage capital from external sources is a major constraint for most SMEs. Rather they depend more on owner’s equity as internal funds through retained earnings, the lack of access to external finance plays as constraints in such scenario (Romano et al., 2001; Abor and Biekpe, 2006). These SMEs need to manage external sources to invest in their operations to stay competitive and increase financial performance.

We used cross-sectional firm-level data for Bangladesh from the World Bank Enterprise survey for which there is access to external finance data, covering a total of 3,196 sample enterprises for the period 2007–2013. In extensive interviews with manufacturing and service-oriented enterprises, the survey data reflect business perceptions of the largest hurdle to firm performance and the relative significance of different restrictions on firm productivity. It is vital to note that this survey is limited to fully registered businesses with a minimum of five employees, initially in the manufacturing and service industries. The number of employees selected by WBES to distinguish small- and medium-sized firms is the most widely utilized criterion in Bangladesh (SME). Table 1 summarizes the definition of SMEs in Bangladesh (European Union Recommendation, 2003).

Table 2 presents the descriptive statistics accompanied by the mean and standard deviation of the independent, dependent, and control variables employed in estimation results of regression in this section. The table shows that labor productivity is positive with an average and standard deviation of 0.262 and 0.419, respectively. The mean financial access and financial obstacle are positive at 0.441 and 0.1183, accompanied by standard deviation of 0.497 and 1.177 subsequently. The close association between financial access and financial obstacles mean and standard deviation depicts the significance of labor productivity. Around 26% of firms are involved in exports with a standard deviation of 42.48. The average direct exports and indirect exports are positive of 20.28 and 5.468, along with a standard deviation of 38.92 and 21.18, respectively. The poor association between mean and standard deviation of direct and indirect exports depicts weak impact on dependent variable. In addition, the table exhibits that around 16% of service-oriented SMEs got accepted for bank loan. Proprietorship also shows an average of 0.510, accompanied by standard deviation of 0.500, where the maximum value is 1 and minimum 0.

Table 3 presents the correlation matrix. As expected, there is the correlation coefficient of two indicators of access to external finance; financial access is positive and financial obstacle is negative, high (0.0789 and −0.0422) and statistically significant at 1 and 10% level, respectively. Export and labor productivity are strongly negatively correlated with a value of −0.147 at 1% significance level. The decomposition variable of exports, direct and indirect exports, which is credit-accessed exhibits negative but significantly correlated with labor productivity at 1% significance level, respectively, −0.111 and −0.0900.

We proceed to operate the variance inflation factor (VIF) to confirm that multi-collinearity does not occur between explanatory and explained variables in Table 4. Table 4 exhibits that all VIF values are less than the cutoff values of 5, which denotes no significant multi-collinearity detected between dependent and independent variables. So, our result does not face a multi-collinearity issue.

Table 5 exhibits the regression model outcomes of the impact of access to external finance on labor productivity. The outcomes reported in columns 1 and 4 exhibit models with either one of the independent variables of interest (financial obstacle and financial access), and it shows both the financial obstacle and financial access are significantly positively related to labor growth. These outcomes are significant at the 1% significance level. This outcome is similar to the finding of Rupasingha and Wang (2017), which are bank loans and minor obstacles turned out to be significant in developing countries’ firm performance. Therefore, we recommend that policies toward investment in SME development and relaxation on SME may offset liquidity shortage from achieving investment facilities and eventually increase labor productivity.

Again, in columns 4 and 5, SMEs with higher firm quality, calculated by export sales percentage, have a significantly negative impact on labor productivity. However, the findings of the analysis indicate that SMEs with a higher level of export sales have lower labor productivity which is similar to the findings of Taspinar (2010). The probable reason for our different outcome could be that Bangladesh might not have sufficient knowledge and enough experience to utilize resources economically, so in the long run, the export becomes more costly than expected.

To justify the third investigation, columns 3 and 6 in Table 5 show the interaction effect between firm quality through export sales and access to finance. Our analysis shows that for a given export sales proportion, SMEs that have bank loans have lower labor productivity than firms having financial constraints due to the absence of bank loans. In another way, credit-accessed SMEs with lower entry to the international markets have negative labor productivity than constrained SMEs. However, there is no statistical significance found in these interaction results because export-oriented SMEs might have insufficient access to external finance. The reported results also support that age of firms and managerial experience are negatively significant at the 1% level. However, the only difference in service industry is positively significant at 1% and 5% levels. This highlights the significance of such control variables on labor productivity in the long run.

The results in Table 6 show the disintegration effect of export sales between direct and indirect exports. The results in columns 2 and 4 are explicit that both are statistically insignificant for direct and indirect exports. This analysis points out a negative association between direct and indirect exports with labor productivity for credit-accessed firms. In addition, there is a negative but statistically significant interaction between indirect export and access to capital as a perceived obstacle. This tells that the slope of indirect export sales proportion is smaller for SMEs that perceive financial access as a minor or no obstacle. However, the overall results for direct exports between financial access and obstacle are not statistically significant which is similar to the outcome of Rambocas et al. (2015). The probable reason behind that the exporters, with backing from indirect routes, are more likely to reach immediate financial goals; but the long-term goals are more effective by direct channels. We also found SMEs’ both firm age and managerial experiences are negatively significant to labor productivity. The service industry is also positively associated with labor productivity and in some cases shows a significant impact.

This article is one of the first initiatives to investigate the interaction between access to external finance and export sales, and labor productivity nexus in a cross-sectional framework in the context of Bangladesh. Our outcome also depicts the individual impact of indirect and direct export sales on credit-accessed SMEs’ labor productivity. In addition, we have also examined the individual effect of both external finance access and firms’ export sales, on labor productivity. At first, this result exhibits that external finance access is a potential explanation for higher SME labor productivity in developing countries such as Bangladesh. This outcome is in line with the study by González Martinez (2014) and De Vries and Duque (2018) and reinforces that access to external finance is a significantly positive function of labor productivity growth in the SME industry.

Again, our results confirm that financially accessed SMEs along with a higher level of export sales have lower labor productivity. In 2021, this article also concluded a similar outcome for export effects on German firms’ labor productivity (Fryges and Wagner, 2021). Our result regarding firm quality and lower labor productivity is also consistent with the study by Falk and Hagsten (2015) in Sweden. This paper indicates that other external determinants obstruct the positive effect of export on firm labor productivity. These include high sunk costs incurred to enter export markets, inefficient allocation of working capital, absorbs excessive resources, lack of knowledge on target markets, lack of product innovations, and internationally uncompetitive capacity. The negative impact in our analysis indicates that SMEs with higher marginal cost are less productive enough to cover the sunk cost, such as R&D and promotional expenses, negotiating with potential foreign partners, customizing product attributes, among others. It also indicates that service-oriented firms rely more on research and development rather than resources and low labor available in local economy. Firms can improve their productivity through “learning by exporting” that exposition to external knowledge flow and technical efficiency (Eliasson et al., 2012).

Furthermore, our outcomes confirm that interaction effect between access to external finance and export sales is insignificant to SME labor productivity. Although probable reasons for this insignificant outcome were not examined in this article, possible explanations can be outlined from the prior article’s contributions. In 2013, the study by Chen and Guariglia (2013) also concluded a similar result of insignificant labor productivity in Chinese manufacturing firms. Chen and Guariglia (2013) argued that inefficient distribution of access to external finance channels on export-oriented SMEs causes insignificant labor productivity. The author recommended that a financial system should be developed, particularly bonds and stock markets to ensure more finance channels toward firms’ productivity. The result depicts in this article is also in line with the study by Greenaway et al. (2007) on the interaction between access to external finance and export sales in the United Kingdom market.

Our final findings relate to the individual impact of direct and indirect export sales on credit-accessed SMEs’ labor productivity. Direct exports’ impact on credit-accessed SMEs’ labor productivity is insignificant in our article. However, our outcome demonstrates that even minor obstacles on financially accessed indirect exports firms could indicate lower labor productivity in Bangladesh. Lejpras (2019) explained that service-oriented SMEs are less likely to engage in direct export, on average, lower labor productivity. In the same year, Chan (2019) argued that firms with insufficient liquidity prefer to adopt indirect exporting through an intermediate channel to lower fixed or upfront expenses. Due to the insignificant effect of direct export on firms’ productivity, our final outcomes tentatively recommend that external knowledge sourcing is crucial to develop innovativeness and internal knowledge for service-oriented SMEs.

Several policies can be drawn from the results of the current article to alleviate the negative impact of financially accessed firms’ exports on labor productivity in Bangladesh. It recommends that less productive firms should engage in exports through indirect channels, and firm managers should concentrate on external knowledge sourcing to improve marketing and product innovations to facilitate export channels to achieve international competitiveness. Existing policies of the Bangladeshi financial market should be assessed carefully and encourage stock and bond markets to participate in ensuring more sustainable external finance channels for enhancing SME labor productivity and sustainable economic growth. Furthermore, the government should induce new programs such as tax rebates on export items, flat exchange rates, and subsidized interest rates for bank loans to promote export through sustainable credit-accessed SMEs in Bangladesh. The business environment in Bangladesh changed in 2021, when businesses were in an early recovery phase following the ease of COVID-19 contamination. The current report showed that limited access to financing is one of the most problematic factors which indicate that firm performance suffered a lot due to this factor. The policies recommended from above findings will be beneficial to impede this problematic business factor and to ensure sustainable firm performance.

The goal of this article was to establish the causal effect of both financial access and firm quality on SME labor productivity, respectively, in Bangladesh. This study also investigates the individual impact of financially accessed direct and indirect export-oriented SMEs on labor productivity, employing WBES cross-sectional firm-level data of 3,196 Bangladeshi firms for 2007–2013. OLS model and the PSM method were applied to examine the causal effect of the selected variables on SME labor productivity. The findings of our empirical results can be summarized as follows. The results depict that access to external finance is positively significant to labor productivity. However, our finding explores a negative relationship between exports and SME labor productivity. This outcome indicates insufficient knowledge and lack of experience to utilize resources at the maximum level by SMEs. The findings also exhibit no statistical significance in the interaction effect between firm quality and access to finance results on labor productivity because export-oriented SMEs might have insufficient access to external finance.

Furthermore, the study anticipates novel empirical support that the disintegration effect of export sales between direct and indirect exports with labor productivity for credit-accessed firms is also found statistically insignificant in our analysis. The article summary provides a useful supplement for extant literature on access to external finance and firm quality of SMEs’ inter-relation effects on firms’ performance in the context of lower- and middle-income countries.

However, the inclusion of lack of acclimation factors while comparing the linkage between external financing, export sales, and labor productivity must be acknowledged as a shortcoming of this work. Future research avenues can be expanded by adding other external factors as control variables to justify whether these determinants have a significant effect. Another drawback of this research is that this paper only included labor productivity in Bangladesh, which may render the findings insignificant for other middle-income economies. Future research in this avenue can consider this issue by expanding the research methodology to include more emerging South-Asian countries. It would also be viable of exploring whether the interaction effect of export sales and access to external finance differs among South-Asian countries. Last but not the least, the unavailability of the updated WBES data is another shortcoming of this article. Although the addition of the most updated WBES data in this article is ample to support the findings, the updated version in WBES data can still be considered for upcoming research work.

The datasets presented in this study can be found in online repositories. The names of the repository/repositories and accession number(s) can be found below: https://data.worldbank.org/.

MASC and SC: conceptualization, investigation, and writing–original draft preparation. MASC, SC, and ZA: methodology. ZA: software and validation. MASC: formal analysis and resources. ZA and MASC: data curation. AA and MS: writing, reviewing, and editing. SC: visualization, supervision, and project administration. MS: funding acquisition. All authors have read and agreed to the published version of the manuscript.

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article, or claim that may be made by its manufacturer, is not guaranteed or endorsed by the publisher.