Access to the Internet and Access to Finance: Theory and Evidence

Yinghui Chen, Xiaolin Gong, Chien-Chi Chu and Yang Cao
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Yinghui Chen: School of Accounting, Zhongnan University of Economics and Law, Wuhan 430073, China
Xiaolin Gong: Central Huijin Investment Corporation, Beijing 100010, China
Chien-Chi Chu: Department of Finance, Shantou University of Business School, Shantou 515063, China
Yang Cao: Henan Finance University, Zhengzhou 451464, China

Sustainability, 2018, vol. 10, issue 7, 1-38

Abstract: This paper aims at investigating the relationship between the use of the Internet and access to external finance of small and micro businesses, both theoretically and empirically. We first develop a theoretical model to explore how access to the Internet affects the credit availability of firms. The model suggests that access to the Internet can effectively mitigate financing difficulty of firms by alleviating information asymmetry and reducing agency cost, and thus can promote the sustainable development of those firms. The model also shows that access to the Internet can improve social welfare based on aforementioned mechanism. Using China household finance data from China Household Finance Survey, we tested the impact of access to the Internet on access to finance of small and micro businesses. Our empirical results confirm the positive role played by access to the Internet in alleviating financing difficulty of those firms. Moreover, we also found evidence that access to the Internet can reduce borrowers’ dependence on physical branches of banks when making bank choice decision for loan applications. Our evidence also implies that access to the Internet is conducive to the sustainable development of small and micro businesses via mitigating their financing difficulty.

Keywords: access to the Internet; access to finance; sustainable development of small and micro businesses (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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