Foreign Bank Entry And The Remission Of Financing Constraints Based On The Evidence

With the further development of financial liberalization and economic globalization, according to the expectation of standard economic and financial theory, foreign bank entry will help to improve the efficiency of the banking system of the host country, to improve the efficiency of capital allocation of credit. A large number of Chinese empirical literatures have found that, foreign bank entry has brought significant "catfish effect" to promote the banking competition, improve the efficiency of the domestic banking sector. Given the financial services for the purpose of the real economy, whether foreign bank entry can help to the development of the real economy of China should become the focus of further research. Empirical studies at home and abroad show that whether the real economy could benefit from foreign bank entry cannot be generalized. In the period of China’s economic transition, cracking the problem of corporate financing is the gist of financial services in the real economy. Inspired by the existing literatures, based on the perspective of firm heterogeneity, the paper researches the effects of the foreign bank entry on the release of enterprise financing constraints.The paper firstly reviews the relevant literatures about the determinants of financing constraints and the effects of foreign bank entry on the financing constraints of enterprises, and then examines the development characteristics of foreign banks in China in terms of size, market share, profitability, location selection. By using data from A-share manufacturing listed companies from2006to2012, based on cash-cash flow sensitivity model, this paper investigates the calming effects of foreign bank entry on the corporate financing constraints. Empirical results show that the ease role of foreign bank entry on the financing constraints of state-owned enterprises is not obvious, but foreign bank entry alleviates effectively the financing constraints of large private enterprises. Due to the existence of "skimming" effect, foreign bank entry has worsened the problem of financing constraints of private SMES. Given the SMES are the main of private enterprises, overall, foreign bank entry has exacerbated the degree of financing constraints of private enterprises.The main policy implication of the paper is that, in order to promote the localization of foreign banks as soon as possible, on the way of the implementation of national treatment to the foreign banks, the government, at the same time, should adopt appropriate measures to guide the foreign banks to expand their target customer groups from some high quality customers to the group of relatively low-end customers, such as small and medium-sized private enterprises in order to make a substantive contribution to alleviating the problem of financing constraints and boost economic growth in China.