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Top1. Introduction
Small and medium-sized enterprises (SMEs) are the fastest growing business sector in many countries, including developing countries, as evidenced by the fact that they are the growth engine of many economies, or least developed (Savlovschi & Robu, 2011). The OECD estimates that SMEs make up 90% of businesses and employ 63% of the world's workforce (Munro, 2013). According to the Asian Development Bank-ADB (2016) report, SMEs account for a large proportion of the total number of businesses in a country, region, and globally, potentially employing more than 50% of the total. The number of social workers and large volumes of jobs for workers globally (up to 65%). Concerning economic growth, many statistical results worldwide show the critical role of SMEs in the economic growth of the region/country. SMEs contribute about 50% of GDP and represent many areas of business: 50% is distributive trade, 10% in manufacturing, 10% in services, and 30% in agriculture.
Many studies have identified numerous challenges confronting SMEs in a globalized environment (Subhan et al., 2013; Mwika et al., 2018). SMEs face various challenges, including a lack of funding, low productivity, a high regulatory burden, and limited human capital development (Tran & Nguyen, 2019). SMEs face several challenges in the emerging market, including a lack of managerial capabilities and difficulties accessing quality management and technology (Wafa et al., 2005; Mwika et al., 2018; Nguyen, 2019).
The importance of finance for the growth of SMEs, especially SMEs' financial structure, has not been studied commonly compared to the large firms (Kumar & Rao 2015). In fact, financial constraints have considerable effect on the annual growth of small firms (Beck & Demirguc-Kunt, 2006). Also, many studies demonstrated SMEs' important role in the economic development of countries. However, in terms of the empirical assessment, most of the studies looked at the performance of SMEs at the microeconomic (organizational) level, explaining the relationships of SMEs' performance with their internal environment factors or with a combination of internal and external factors.
This study's primary objective is to estimate the effect of financial leverage on the performance of SMEs in Vietnam from 2010 to 2020, a period of COVID-19 pandemic. The research question is formulated to accomplish this goal: “To what extent does financial leverage affect SMEs' performance in the Ho Chi Minh City area during the COVID-19 pandemic?”.