The Impact of Banking Structure on SME Financing in China: Based on The Theory of Small Bank Advantage

Jingyi Li; Jiayi Zhang; Zhixiu Li

doi:10.54097/rya5t137

Authors

Jingyi Li
Jiayi Zhang
Zhixiu Li

DOI:

https://doi.org/10.54097/rya5t137

Keywords:

SME Financing, Digital Finance, Small Bank Advantage, Small and Medium-sized Banks.

Abstract

Small and medium-sized enterprises (SMEs) are essential to China’s national economy, but the financing difficulties constrain their long-term development. Based on the data of listed companies of SME and GEM (Growth Enterprise Market) from 2016 to 2023, this paper systematically analyzes the impact of small and medium-sized banks on SMEs’ financing by using the double fixed effect model. The results show that: (1)The development of small and medium-sized banks significantly reduces the financing constraints of SMEs, which verifies the validity of the theory of “small bank advantage” in modern times. (2)The development of digital finance weakens the marginal role of small and medium-sized banks, and large banks break through the geographic limitations and improve the efficiency of information processing through technological empowerment, weakening the traditional advantages of small and medium-sized banks. (3)The central and western regions rely more on the information advantages of small and medium-sized banks, while the role of small and medium-sized banks is limited in the eastern regions. This paper enriches the analysis of the economic effects of the advantages of small and medium-sized banks in the modern era, while providing empirical support for the financing of SMEs, the transformation of small and medium-sized banks and the optimization of regional financial resources in China.

Downloads

Download data is not yet available.

References

[1] Wang Deqi, Miao Feng, Xu Ming. Financing: the core link of modern economy [J]. Journal of Shandong Agricultural Management Cadre College, 2000(01):48-51.

[2] Ma Jiujie, Wang Guoda, Zhang Jian. Small and Medium-sized Financial Institutions and Credit for Small and Medium-sized Enterprises in County Areas: An Empirical Analysis of the “Small Bank Advantage” from the Demand Side [J]. Agricultural Technology and Economy, 2012(04):4-13.

[3] Li Wenfang, Hu Qiuyang. Whether FinTech “Empowerment” can break the “Spatial Barriers” to SME financing: Micro evidence from changes in the spatial layout of the banking industry [J]. Financial Science, 2024(4):15-37.

[4] Liberti J. M., Petersen M. A. Digitizing Lending: The Impact of Technology on Small Business Finance [J]. Journal of Financial Economics, 2019, 134(02): 371-389.

[5] Zhang Yilin, Lin Yifu, Gong Qiang. Digital Technology and SME Financing: A New Structural Economics Analytical Framework [J]. Economic Research

[6] Wang, W. X., & Zhao, G. The Financing Dilemma of SMEs in the “Yangtze River Delta” and Its Solutions [J]. Management World, 2012, (12): 175-176.

[7] Liu, X. G., & Liu, J. T. Labor Costs and Financing Constraints of Small and Medium-Sized Enterprises [J]. Journal of Financial Research, 2020, (09): 117-135.

[8] Huang, Y. P., & Tao, K. Y. China’s Digital Financial Revolution: Development, Impact, and Regulatory Implications [J]. International Economic Review, 2019, (06): 24-35+5.

[9] Boot A, Thakor A. Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game[J]. International Economic Review, 1994, 35(4): 899-920.

[10] Lin, Y. F., & Sun, X. F. Information, Informal Finance, and SME Financing [J]. Economic Research Journal, 2005, (07): 35-44.

[11] Yao, L., & Sheng, G. H. Financing Challenges of SMEs and Reform of Financial Institutions [J]. Contemporary Economic Research, 2002, (03): 57-59.

[12] Zhao, C., Zhou, Q., & Wang, J. Credit Inclination, Financing Constraints, and SME Growth: Empirical Evidence from Industrial Enterprises in the Yangtze River Delta [J]. China Industrial Economics, 2012, (09): 77-88.

[13] Stein, J. C. Information Production and Capital Allocation in Decentralized and Centralized Banking Organizations[J]. The Journal of Finance, 2002, 57(03): 1887-1921.

[14] Zhang, J. Relationship Lending of SMEs and Bank Organizational Structure [J]. Economic Research Journal, 2002, (06): 28-35.

[15] Berger A. N., Udell G. F. A More Complete Conceptual Framework for Small Business Finance[J]. Journal of Banking & Finance, 2006, 30(11): 2945-2966.

[16] Lin, Y. F., & Li, Y. J. Development of Small and Medium Financial Institutions and SME Financing [J]. Economic Research Journal, 2001, (01): 10-18, 127.

[17] Ogura E., Uchida H. Bank Consolidation and Small Business Lending: Evidence from Japan[J]. Journal of Financial Intermediation, 2014, 23(01): 67-89.

[18] Liberti J. M., Petersen M. A. Digitizing Lending: The Impact of Technology on Small Business Finance[J]. Journal of Financial Economics, 2019, 134(02): 371-389.

[19] Cheng, C., Huang, Y. P., & Shen, Y. Digital Transformation and Reconstruction of Bank Competitive Advantages: An Empirical Study Based on the Micro and Small Enterprise Credit Market [J]. Journal of Financial Research, 2024, (02): 45-62.

[20] Huang, Y. P., & Huang, Z. The Digital Financial Revolution: China’s Experience and Implications [J]. China Economic Quarterly, 2018, 17(04): 1315-1338.

[21] Frame W. S., Srinivasan V. AI Credit Models and the Decline of Community Banks’ Small Business Lending[J]. Journal of Financial Services Research, 2023, 63(01): 1-23.

[22] Berger, A. N., & Udell, G. F. A More Complete Conceptual Framework for SME Finance[J]. Journal of Banking & Finance, 2006, 30(11): 2945-2966.

[23] Stein, J. C. Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms[J]. The Journal of Finance, 2002, 57(5): 1891-1921.

[24] Berger, A. N., Miller, N. H., Petersen, M. A., Rajan, R. G., & Stein, J. C. Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks[J]. Journal of Financial Economics, 2005, 76(2): 237-269.

[25] Jensen, M. C., & Meckling, W. H. Specific and General Knowledge, and Organizational Structure[J]. In L. Werin & H. Wijkander (Eds.), Contract Economics (pp. 251-274). Blackwell, 1992.

[26] Berger, A. N., & Udell, G. F. Small Business Credit Availability and Relationship Lending: The Importance of Bank Organizational Structure[J]. The Economic Journal, 2002, 112(477): F32-F53.

[27] Uzzi, B. Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness[J]. Administrative Science Quarterly, 1999, 44(1): 35-67.

[28] Degryse, H., & Van Cayseele, P. Relationships, Commitment, and the Credit-Rationing Puzzle[J]. European Economic Review, 2000, 44(1): 109-134.

[29] Macneil, I. R. Contracts: Adjustment of Long-Term Economic Relations under Classical, Neoclassical, and Relational Contract Law[J]. Northwestern University Law Review, 1978, 72(6): 854-905.

[30] Xie, X. L., & Zhang, X. M. FinTech, Bank Competition, and SME Financing: A Perspective from Digital Credit [J]. Economic Research Journal, 2020, 55(3): 97-113.

[31] Li, Z. Y., & Wang, F. Digital Finance Development and the Restructuring of Banking Competition Patterns [J]. Journal of Financial Research, 2021, (5): 45-62.

[32] Chen, Y. L., & Ma, Y. Survival Space and Transformation Path of Small and Medium Banks in the Context of FinTech [J]. Economic Perspectives, 2019, (8): 78-92.

[33] Zhang, X. Y., & Liu, C. Digital Inclusive Finance, Bank Size, and Credit Resource Allocation Efficiency [J]. Management World, 2022, 38(4): 112-128.

[34] Wang, Q., Liu, F., & Zhou, M. Research on the Application of AI Risk Control Models in the Banking Industry [J]. China Industrial Economics, 2023, 39(05): 108-126.

[35] Brown, J. R., Martinsson, G., & Petersen, B. C. Digital Banking and Local Credit Markets[J]. The Review of Financial Studies, 2020, 33(08): 3456-3493.

[36] Chen & Wang. The Impact of Digital Competition on Bank Operations[J]. Journal of Financial Economics, 2019, 133(02): 297-318.

[37] Wang Family,Sheng Nan. Digital Transformation to Promote Green Innovation in Enterprises[J]. Journal of Beijing Institute of Technology (Social Science Edition),2024,24(5):113-130.

[38] Gao Ling. Research on the Impact of Digital Transformation on Chinese Enterprises’ Outbound Direct Investment[D]. Jiangxi:Jiangxi University of Finance and Economics,2023

[39] Xie Jie,Chen Liuqin. The inner mechanism of new quality productivity empowering financial high-quality development[J]. Credit Research,2024,42(9):14-26.

[40] Cheng, C., & Zhao, C. L. Can Small and Medium Financial Institutions Alleviate Demand-Side Rationing for SMEs? —An Empirical Test of the “Small Bank Advantage” Theory [J]. Journal of Investment Research, 2018, 37(09): 18-32.

[41] Zhu, D., Song, H. W., & Wang, X. S. Debt Maturity Structure and Enterprise Exports: Theory and Empirical Evidence from Chinese Listed Companies [J]. Journal of International Trade Issues, 2025, (03): 143-159.

[42] Pan, H. B., & Han, F. F. Vertically Concurrent Executives, Ownership Nature, and Accounting Information Quality [J]. Accounting Research, 2016, (07): 19-26+96.

[43] Liu, M., Luo, Y. Q., & Ping, W. Y. How Does Digital Finance Development Affect Regional Financial Stability? [J/OL]. Collected Essays on Finance and Economics, 2025: 1-17[2025-04-22].