Targeted monetary policy and financing constraints of Chinese small businesses

Chaoying Lin (), Lerong He () and Guangqing Yang ()
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Chaoying Lin: Fuzhou University
Lerong He: Fuzhou University
Guangqing Yang: Fuzhou University

Small Business Economics, 2021, vol. 57, issue 4, No 25, 2107-2124

Abstract: Abstract This study examines the effect of targeted easing (TE), an unconventional monetary policy designed to reduce reserve requirement ratios (RRR) of selected financial institutions, on reducing financing constraints of Chinese small businesses. Using a longitudinal sample of listed small businesses between 2003 and 2018, we find that the implementation of a TE policy significantly reduces financing constraints of small businesses as measured by the cash flow sensitivity. In addition, the policy effect is stronger when reductions in RRR are targeted at financial institutions specialized in small business lending than at banks with a threshold level of small business loans. We also document that small businesses with larger financing needs benefit significantly more from the TE policy and experience a larger reduction in their financial constraints. Moreover, the TE policy effect is more salient in state-owned small businesses than privately controlled enterprises. These results are also robust to alternative measures of financing constraints.

Keywords: Monetary policy; Targeted easing; Financing constraints; Small business; China (search for similar items in EconPapers)
JEL-codes: E52 G31 G38 L26 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11187-020-00365-5

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