Tuesday, April 10, 2012
Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small and Medium Enterprises? Evidence from China
Posted by D. Daniel Sokol
T.T.L. Chong, L. Lu, and S. Ongena (Tilburg University, Center for Economic Research) ask Does Banking Competition Alleviate or Worsen Credit Constraints Faced by Small and Medium Enterprises? Evidence from China.
ABSTRACT: Banking competition may enhance or hinder the financing of small and medium enterprises. Using a survey on the financing of such enterprises in China, combined with detailed bank branch information, we investigate how concentration in local banking market affects the availability of credit. We find that lower market concentration alleviates financing constraints. The widespread presence of joint-stock banks has a larger effect on alleviating these constraints, than the presence of city commercial banks, while the presence of state-owned banks has a smaller effect.