Banking Competition And SME Financing Constraints

As the major type of enterprises,Small and Medium-Sized Enterprises(SMEs) play ainportant force inpromoting the national economy development in China. However, the financing problem remains a key constraint to their development in current times. Due to the financialsystem is not yet mature, the major financing channel of SMEs in China are banks. Since reform and opening-up, China's banking structure has happened significant changes. China's banking industry has changed from the monopoly of state-owned banks to a diversified and modern banking system.Banking competition presents a gradually increasingtrend,at the same time,as the marketization of interest rates and financial disintermediation are getting faster, SMEs has become a new profit growth point of banks in China,especially, small and medium banks perform a stronger passion to financing SMEs.Based on a broad set of 676 listed SMEs in China during 2006–2013, this paper makes an empirical analysis of how banking competition influences SMEs financing constraints by using the system GMM. And the results strongly support the market power hypothesis, namely that the increased banking competition would effectively relieve the financing constraints of SMEs.Andwe found the development of small and medium banks can reduce financing constraints by analyzing the China's banking structure.Inaddition,to ensure the robustness of our study's result,we build a new empirical model to further chest the robustness of empirical results. Innovation of this article is mainly reflected in making up for the lack of empirical evidence of the relationship between banking competition and SMEs financing constraints.