Research On The Impact Of The Bank Relationships On The SMEs Financing

With the improvement of China’s international status and the reform of interestrates liberalization in recent years, banks will face severe challenges that thetraditional big clients have more bargaining power and financial disintermediationbecomes more and more popular. Meanwhile a lot of small and medium enterpriseshave difficulty in financing, which play an important role in driving economic growth.This imbalance directly affects sustainable development of our social and economy.Therefore we need to look for the combination of their banks and the small andmedium enterprises, which help them to achieve a win-win situation and then promoteeconomic development speedily and soundly. Bank relationship is the importantcombination. As a bank provides an array of services through time to the client ofsmall and medium enterprises, it gains substantial private soft knowledge about itscustomers, and the information help bank decide whether to offer a loan to the SMEs.SMEs also deliver substantial private soft knowledge to banks that has a closerelationship with the SMEs and so get more concessional loan. Therefore, small andmedium enterprises should establish long-term stable relationships with banks so thatthey can ease the financing problem. The establishment of initial private banks is asymbol that private banks enter financial institution system in China. How to betterdevelop private banks has become to be an important problem to the governments atall levels. Relationship lending and small bank advantage become hot topics in thegovernment and academia again.This paper will do a deep research on the impact of bank relationships on theavailability and cost of the credit to SMEs.By reviewing some literatures on bankrelationships, we confirm the main relationship variables influencing the availabilityand cost of the credit to SMEs. The relationship variables include length ofrelationship, number of relationship and executives’ work experience in banks. Thepaper uses the two-period credit model proposed by Sharpe to analyze the impact ofbank relationships on the credit to SMEs and whether it increase the affect if weincorporate banking structure into the models. On that basis, we model these related variables, describe the different influence bank relationships, do empirical test bytwo-step system GMM method and make a robustness test to the study model by theinstrumental variable fixed effects model from the views of nation and bankingstructure with the credit data of the215listed small and medium enterprises between2009and2013. Therefore, these conclusions provide some practical guidingsignificance for China carrying out relationship lending to solve the problem of smalland medium-sized enterprise financing.Through theoretical and empirical study, we receive three corresponding resultsas follow:(1) Small and medium enterprises with close banking relationships can gainmore credits at relatively low rates. That is, the longer the length of relationship, themore number of relationship and executives have work experience in banks, thegreater the probability of the availability to SMEs.(2) Small and medium enterpriseswith close banking relationships can reduce the cost of the credit. That is, the longerthe length of relationship, the more number of relationship and executives have workexperience in banks, the lower the cost of the credit to SMEs.(3) From bankingstructure perspective, the close relationships between firm and bank don’tsignificantly affect the availability and cost of the credit to SMEs. Therefore, wequestion the opinion that some scholars advocate to develop small and mediumfinancial institutions to fundamentally solve the problem of small and mediumenterprise financing.