Firm Characteristics and Access to Bank Loans: An Empirical Analysis of Manufacturing SMEs in China

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					Firms Characteristics and Access to Bank Loans: SMEs in China                   ISSN 1985-692X




Research                                                                 Received 31 August’08/
                                                                        Accepted 10 February’09
Paper                                                                              SAFA = 0.66




Firm Characteristics and Access to Bank Loans: An
Empirical Analysis of Manufacturing SMEs in China
                                  ♣
                                      Masanori Okura

                       Faculty of Economics, Senshu University, Japan


    Abstract: Using the World Bank’s Enterprise Survey, this paper examines the
    relationship between the financing patterns of China’s manufacturing SMEs and
    their characteristics including ownership and location. The financing patterns of
    our sample firms are bi-polar depending on whether a firm makes use of bank
    loans. Therefore, we focus on the characteristics of those firms which have
    commercial bank loans for financing working and investment capital. Conducting
    probit analysis, we show that smaller firms and firms in the regions with less
    developed financial environments are more constrained in using bank loans. The
    availability of accounting and legal services, export right, and government
    agency’s assistances enhance access to bank credits, although the government
    assistance has not necessarily targeted smaller firms.

    Keywords: Chinese SMEs, financing pattern, bank loan access, probit analysis


INTRODUCTION

Small and medium-sized enterprises (SMEs) have played an essential leadership
role in recent economic development in China to meet various market needs as
well as to create sizable number of jobs. However, it has been widely discussed
that the financial access of private SMEs is considerably constrained, and
improving their financing environment is requisite for sustaining high economic
growth and for further promoting the transition to a market economy.
   The transaction and information costs to use external financial sources - be it
through indirect or direct financing—are generally thought to be higher for
SMEs than for large major enterprises. SMEs are generally under

♣
ma-okura@isc.senshu-u.ac.jp




International Journal of Business and Management Science, 1(2): 165-186, 2009              165
Firms Characteristics and Access to Bank Loans: SMEs in China                   ISSN 1985-692X




disadvantageous position due to the existence of scale economies of financial
transactions. The transaction and information costs associated with financial
intermediation depend on numerous factors, including the availability and
reliability of information concerning a firm’s business conditions, relationship
between the firm and financial intermediaries, availability of collateral,
efficiency and competitiveness of financial intermediaries, and effectiveness of
legal and judicial systems to protect financial claims. Against the backdrop of
high intermediation costs owing to these underdeveloped institutions, SMEs in
developing countries tend to rely on informal financing sources such as family
and friends.
    Along with these kinds of problems generally observed in developing
countries, it sho
				
DOCUMENT INFO
Description: Using the World Bank's Enterprise Survey, this paper examines the relationship between the financing patterns of China's manufacturing SMEs and their characteristics including ownership and location. The financing patterns of our sample firms are bi-polar depending on whether a firm makes use of bank loans. Therefore, we focus on the characteristics of those firms which have commercial bank loans for financing working and investment capital. Conducting probit analysis, we show that smaller firms and firms in the regions with less developed financial environments are more constrained in using bank loans. The availability of accounting and legal services, export right, and government agency's assistances enhance access to bank credits, although the government assistance has not necessarily targeted smaller firms. [PUBLICATION ABSTRACT]
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