Social Connections And Corporate Credit Constrains

In the context of a transitional economy,due to various reasons such as the relatively imperfect formal system and the slow development of market mechanisms,private enterprises do not have outstanding advantages over state-owned enterprises in many aspects.Among them,the phenomenon of "discrimination of ownership" and"discrimination of scale" in the formal financial market is the most prominent.The formal financial sector credit support for private enterprises,which is playing an increasingly important role in the national economy,is very limited,and financing difficulties have become a major bottleneck restricting its further development.As one of the main forms of corporate financing,external financing capacity is an important factor in promoting corporate growth.China's financial system is dominated by banks,and bank loan financing is critical to the development of China's private economy.In such an environment,"congenital deficiency" private enterprises try to find alternative informal systems and mechanisms to obtain financing facilities and support their own development.Social relations in the category of social capital are a particularly important informal mechanism.In the context of the imperfect formal system,social connections,which belong to the category of social capital,play an important role for the development of enterprises.Using World Bank's enterprise investment climate survey data of China in 2012,this paper empirically investigates the impact that bank-firm connection,government-firm connection and connection between enterprises exert upon enterprises' availability of bank loans and credit constrains.The results reveal that a good bank-firm connection contributes to getting access to bank loans and further relieving credit constrain and self credit constrain.There appears to be substitution effects between its function and the influence mechanism of enterprises'growth on bank financing.However,after controlling for the effects of bank-firm connection,government-firm connection cannot help enterprises to ease the credit constrains.Connection between enterprises has a significant positive impact on the credit constrains and the influence is greater for non-private holding enterprises.This is mainly because the enterprises which have intimate connections with other firms tend to financing through alternative channels such as trade credits.Therefore,in the transition economies such as China,informal institutions like social connections could play a substitute role to some extent and help the enterprises accessing to credit funds,further supporting for enterprise development.