The Effect Of Targeted RRR Cuts On Financing Of SMEs: Evidence From China

Comprehensively supporting the development of small and micro enterprises(SMEs)and injecting vitality and new momentum into the high-quality development of the Chinese economy is an inevitable requirement for the smooth operation,transformation,and upgrading of the Chinese economy.For a long time,financing constraints have severely restricted the growth of SMEs.To alleviate the financing difficulties of SMEs and further strengthen the function of financial services for the real economy,the People's Bank of China,the central bank,began to implement targeted reserve requirement ratio cuts(TRRRC)as a structural monetary policy tool in June2014,aiming to encourage commercial banks and other financial institutions to provide more credit resources to SMEs.Different from the traditional “one size fits all” policy,the TRRRC is optimized by lowering the deposit reserve ratio for commercial banks and other financial institutions that meet certain conditions,guiding credit resources to flow more to key and weak economic sectors such as SMEs.Credit allocation structure to realize the transformation and upgrading of economic structure.Therefore,the TRRRC is essentially a loose quantitative structural monetary policy tool.Since its implementation,the TRRRC has attracted much attention from the academic community,and many documents have evaluated the policy effects of the TRRRC.However,due to the availability of data,research perspectives,and research methods,there are few kinds of literature to evaluate the actual effect of the TRRRC on SMEs,and there is a lack of relevant research on the mechanism of targeted RRR cuts.In particular,as an important monetary policy tool to alleviate the financing difficulties of SMEs,a series of issues such as how the TRRRC affects the financing decisions of SMEs and what is the mechanism of action need to be resolved urgently.Currently affected by the new coronavirus,global economic uncertainty has risen sharply,which may lead to a shortage of commercial credit supply on which SMEs depend on the survival and aggravate their financing constraints.Under this special background,the TRRRC policy that precisely supports the development of SMEs is even more significant.It is more necessary to evaluate the effect of its policies and to study the influence mechanism.Using the corporate financial data disclosed by the National Equities Exchange And Quotations(NEEQ),this dissertation comprehensively evaluates the real effects of the TRRRC on SMEs' financing decisions and examines the mechanism.First,this dissertation use the difference-in-difference(DID)method to assess the impact of the TRRRC on the availability of loans for SMEs and the dynamic effects of this pollicy,and examine the mechanism based on the perspective of SMEs' behavior;then,based on the fact that SMEs have to alleviate the financing difficulties by informal systems(such as trade credit),this study use the regression discontinuity design(RDD)to evaluate the impact of loan availability on the trade credit of SMEs,and test the substitution effect of formal financing institution on informal financing institution;Considering that tax avoidance is an internal financing channel commonly used by SMEs in China to ease financing difficulties,the RDD is adopted to evaluate the impact of loan availability on tax avoidance of SMEs,and to test the substitution of external financing for internal financing effect.The main results of this dissertation are as follows:First,the TRRRC policy has significantly improved the availability of loans for SMEs;based on the differences in the degree of regional government intervention and the characteristics of enterprises,the cross-sectional tests show that for firms with weaker regional government intervention,the availability of loans has increased more significantly,indicating that the degree of marketization plays an important role in the transmission of the TRRRC.For firms with weak mortgage capacity and market power,the TRRRC has more profound positive effects on loan availability,providing evidence for the “inclusive” effect of the TRRRC;The mechanism test found that the TRRRC has increased the rent-seeking behavior of SMEs,and stimulated the internal motivation of SMEs to establish relationship for obtaining bank loans.Second,formal institution has a clear substitution effect on informal institutions,after the loan availability of SMEs increased,trade credit decreased significantly,and the results of various robustness tests are consistent with this conclusion.Further analysis finds that the negative effect of the increase in loan availability on trade credit is different due to the heterogeneity of the enterprises.this result provides evidence for the substitutional relation between bank credit and trade credit from SMEs in China.Third,external financing has a significant substitution effect on internal financing,that is,the TRRRC reduces the degree of tax avoidance of SMEs.The mechanism test shows that this substitution effect stems from the decline of financial constraints for SMEs after the TRRRC,which also reduces the dependence of SMEs on cash and the transaction cost of bank loans.Different model settings and robustness tests have consistent conclusions.Further analysis shows that the impact of the TRRRC on the tax avoidance is different due to the heterogeneity of enterprises.For firms with strong financing constraints,the negative effect of the TRRRC on the tax avoidance is more profound,which further provides evidence for the TRRRC to inhibit the tax avoidance of SMEs by alleviating financing constraints.Although the improvement in loan availability has a negative effect on both the trade credit and tax avoidance of SMEs,due to the higher cost of tax avoidance than trade credit,firms with weaker financing constraints tend to use trade credit to obtain more fund.Firms with stronger financing constraints are less likely to obtain trade credit and are more likely to resort to tax avoidance to ease financing constraints.Therefore,the negative effect of increased loan availability on trade credit mainly exists in firms with weak financing constraints,and the negative effect of increased loan availability on tax avoidance mainly exists in firms with strong financial constraints.The above conclusions have clear policy implications:First,the structured monetary policy with a "directional" characteristic,and be "targeted" to accurately support key national economic sectors needs to be implemented continuously.And the government should strengthen the supervision of policy implementation,and evaluate the effect of the policy in a timely manner.Second,government should reduce excessive intervention in the allocation of credit resources to ensure that the market plays a central role in the allocation of resources.At the same time,the supervisory authorities should strengthen supervision to avoid rent-seeking behaviors from distorting the effective allocation of credit resources;then,In-depth research on SMEs helps to improve the information management system of SMEs,thereby alleviating the information asymmetry between banks and firms,and ultimately ensuring the effective allocation of resources.Finally,monetary and fiscal policies should not be isolated,and reasonable tax reduction policies should be introduced in a timely manner to alleviate the financing difficulties of SMEs.The innovation and marginal contribution of this dissertation are reflected in:First,based on the existing literature,this dissertation more comprehensively evaluates the impact of the TRRRC on the availability of loans to SMEs,and examines the mechanism of policy effects,and identifies the causal relationship and dynamic effects between the TRRRC and SMEs' access to loans,and clarifies the micro mechanism of the TRRRC affecting the availability of loans for SMEs.The differences in the impact of heterogeneous corporate loan availability have enriched the relevant literature on evaluating the effects of the TRRRC.Second,based on the perspective of the formal financing institution and the informal financing institution,this dissertation studies the impact of the availability of loans for SMEs on trade credit,and for the first time assesses the real effect of the TRRRC on the financing decisions of SMEs.The evidence for a substitutional relationship between bank loans and trade credit has been provided from China's small and micro enterprises and enriches relevant research on the impact of monetary policy on corporate trade credit.Furthermore,based on the perspectives of internal financing and external financing,this study examines the impact of loan availability on the tax avoidance of SMEs,and find that the increase in loan availability is beneficial to alleviating the financing constraints of SMEs and their dependence on cash.The tax avoidance motives of SMEs are suppressed.This provides empirical evidence for the "cash flow hypothesis" of tax avoidance and enrichs the research on financing constraints and corporate tax avoidance.Third,this dissertation implements the RDD to evaluate the real effects of the TRRRC on the financing decisions of SMEs.Using local non-parametric methods to estimate the regression model can avoid the interference of policy evaluation caused by the impact of the TRRRC on the financing decisions of non-SMEs,and help improve the accuracy of policy effect evaluation.In summary,this dissertaton uses the DID method and the RDD to more accurately assess the impact of the TRRRC on the financing decisions of SMEs in China,clarifies the mechanism of policy effects,and helps to understand the impact of monetary policy on corporate financing.It is of reference significance for government to further strengthen the role of financial services in the real economy in China.Due to data availability and limitations,the research sample studied in this article comes from companies on the NEEQ.However,SMEs are located in various places and even corners of the country.With the continuous improvement of China's information disclosure system and data collection and storage capabilities,it is worth to further investigate the financing decision of SMEs,and provide more and more accurate references for the development of SMEs.