Summary:
The smooth operation, transformation, and upgrade of the Chinese economy inevitably requires the comprehensive development of small and micro enterprises (SMEs). However, financing difficulties have severely restricted the growth of SMEs, causing them to resort to informal channels (such as trade credit) to obtain funds. The Fifth Plenary Session of the Nineteenth Central Committee of the Communist Party of China proposed to support the growth and transformation of SMEs into an important cradle of innovation and to improve policy to promote the development of SMEs. Among these efforts, the implementation of “precise drip irrigation” monetary policy is particularly important for the growth of SMEs and will help to further strengthen the function of financial services in the real economy. To encourage commercial banks and other financial institutions to provide more credit to SMEs and unblock the more formal channels (such as bank loans) through which SMEs can obtain financing, the People's Bank of China, China's central bank, began to implement targeted reserve requirement ratio cuts (TRRRCs) in June 2014. In contrast to traditional “one size fits all” policies, TRRRCs lower the deposit reserve ratio for commercial banks and other financial institutions. This led to new loans to SMEs accounting for more than 50% of all new loans in 2020 in an attempt to incentivize the allocation of credit resources to weak yet important economic sectors such as SMEs. Therefore, TRRRCs are essentially a quantitative easing tool to improve access to finance for SMEs specifically. While many studies have evaluated the effectiveness of TRRRCs, due to data availability and causal identification strategies, there is scant research evaluating the impact of TRRRCs on SMEs' other financing channels, such as trade credit, which is as important as bank loans for SMEs when obtaining funds. TRRRCs exert a significant influence on loan availability for SMEs whose sales fall below specific cutoffs. We can thus employ a fuzzy regression discontinuity design (RDD) and use the generated variation in loan availability to identify the impact of access to finance on the trade credit of SMEs. We conduct this RDD using the National Equities Exchange and Quotation's (NEEQ) financial disclosures data from the China Stock Market and Accounting Research Database. The results indicate that the demand for trade credit decreased significantly after the availability of loans for SMEs increased in response to TRRRCs. Furthermore, the allocation of bank loans is often consistent with the value discovery function of the bank. Banks can grant credit to high-quality companies and exert a supervisory function. Therefore, TRRRCs mainly improve loan availability for firms with fewer financial constraints and better market performance. The negative impact of loan availability on trade credit mainly exists among high-quality SMEs. The results are robust after choosing a different bandwidth, controlling for firm characteristics, sharpening the RDD, and excluding other sources of policy interference. The contributions of this study are as follows. To the best of our knowledge, this is the first study to evaluate the effect of TRRRCs on SMEs' financing decisions. Moreover, the decision to obtain bank loans and trade credit for corporate financing is generally determined by various factors, and this may generate an endogeneity problem. By policy design, TRRRCs only target SMEs whose sales fall below a threshold. If the policy indeed changes loan availability, two kinds of firms whose sales are on the opposite side of the threshold but are otherwise similar will have different levels of financial access. Under this condition, we can use RDD to identify the impact of access to finance on trade credit. The results provide evidence that the substitution relationship between bank loans and trade credit dominates China's SMEs, which enriches the literature on the impact of monetary policy on corporate financing. This study has clear policy implications. First, since TRRRCs improve SMEs' loan availability, this policy could be employed to ease the financing constraints on SMEs. Second, our results indicate that SMEs with fewer financial constraints decrease their trade credit due to the substitution of bank loans. Credit rationing leads to formal credit resources flowing into high-quality firms. Thus, policy makers are expected to introduce innovative financial policy tools that directly reach the real economy, in particular to help SMEs with severe financing difficulties. One limitation of this study is that the sample is composed of firms listed on the NEEQ. However, SMEs are found throughout China. Improvements to China's financial information disclosure regulations and the development of data collection and storage capabilities will allow a more representative sample of the financing decision-making issues facing SMEs to be assessed in future research.
孔东民, 李海洋, 杨薇. 定向降准、贷款可得性与小微企业商业信用——基于断点回归的经验证据[J]. 金融研究, 2021, 489(3): 77-94.
KONG Dongmin, LI Haiyang, YANG Wei. Targeted RRR Cuts, Loan Availability, and the Trade Credit of SMEs: Evidence Based on Regression Discontinuity Design. Journal of Financial Research, 2021, 489(3): 77-94.
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