Financial Relationship, Banking Competition And The Private Enterprise Financing Constrains

Continuous external financing is an important factor in promoting the rapid development of the enterprises. However, as our country is now being in the stage of emerging and transition, too much political interference and state-owned banks dominated the financial system lead to the allocation of resources presented with obvious political overtones, most of the resources flow to state-owned enterprises, so that the private enterprises are still facing serious financing discrimination. Some scholars (Allen et al.) pointed out that the relationship and reputation mechanism can compensate for the market imperfections. We believe that the financial relationship is an important part of the relationship and reputation mechanism that Allen emphasized.Given that financial relationship plays an important part in allocating the resources of the enterprise, more and more scholars began to focus on the economic effects of the financial relationship in the academic circles, some of them study of the impact on financing constraints. By sorting out the literatures we find that:the vast majority of researchers who study financial relationship just treated it as an exogenous variable, and simply compared whether the financial relationship has an effect on the financial constraints, but failed to study its mechanism in the dynamic system.We employ the non-financial private enterprises listed in Shanghai and Shenzhen stock markets from year2006to2012as our research samples, study what influences the financial relationship has on the financial constraints, and also the mechanism that the banking competition acts on the financial relationship. We find that:the financial relationship is conducive to ease the financing constraints of the private enterprises, and it also helps to reduce the information asymmetry, so the related ones show great advantages over the non-related ones on external financing. The gradually increase of banking competition helps to reduces the private enterprise’s credit discrimination, so as to alleviate the financial constraints of the private enterprises. The effect of the financial relationship mitigates the finance constraints of the private enterprises becomes weaker as the banking competition rises. Our further study find that:the establish of the financial relationship does not help to increase the amount of the debts significantly, but optimizing the financial structure by increase the long-term loan ratio.