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

By Okura, Masanori | International Journal of Business and Management Science, December 2008 | Go to article overview

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


Okura, Masanori, International Journal of Business and Management Science


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 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 should be noted that China, having gradually transitioned to a market economy from a planned one, is still lagging behind in the economically rational allocation of capital. During the period of strong economic growth since the initiation of economic reforms and opening up to the outside, China has succeeded in mobilizing financial resources, and the financial deepening, measured in terms of money supply relative to gross domestic products, has reached an impressive high level comparable to those of advanced countries. However, the capital allocation of China's financial institutions, dominated by the four major state-owned commercial banks, has been seriously distorted for the state-owned sectors, and the financial deepening, as exceptional as it is, has not necessarily contributed to the economic growth (Boyreau-Debray, 2003; Ferri, 2005; Okura, 1996). Thus, in spite of recent dramatic economic development, China still combines aspects of both a developing country and a transitional economy with respect to the capital allocation to SMEs.

Reflecting the interests of policy makers as well as researchers in promoting private SMEs, the number of studies surveying SME financing conditions has grown in China. Lin, Xia, He, and Guan (2003), reporting results of the survey conducted in 2000 on 3,027 SMEs, show that the major financing source of working capital as well as investment capital is self-owned capital for about three-quarters of their sample firms, and suggest that the SMEs have faced significant difficulties in borrowing external funds. ADB (2003), having surveyed the financing sources of private SMEs in Beijing, Shenyang, Xi'an, Wenzhou, and Nanhai, shows that there is a marked difference in the degree of bank loan use among these five cities. The proportion of firms obtaining more than 10 percent of required capital from bank loans are less than 20 percent in Shenyang and Xi'an, but that figure is roughly 40 percent in Wenzhou where the private sector has most developed across the country. Xuan and Okura (2006) also find that the share of private enterprises and individuals in total loans of financial institutions are significantly higher in Zhejiang than in other provinces. These findings suggest that the supply side of private SME financing has more developed in Wenzhou and other cities in Zhejiang Province, seemingly keeping pace with the development of private enterprises. Lin, He, and Cai (2005) report results of a survey on 491 private enterprises in Guangdong Province, and provide valuable information on the relationship between firm size and financing patterns. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

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

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.