 Who is lending to small and micro family business in China: evidence from CHFS dataShanhui Wu (),
Mengyao Dong (),
Suhang Tan () and
Yan Dong ()
Small Business Economics, 2024, vol. 63, issue 3, No 15, 1225-1247 Abstract: Abstract This article examines the impacts of traditional and digital finance on the financing of small and micro family businesses (SMFBs) in China. Based on a comprehensive sample of 8625 SMFBs from China Household Financial Survey (CHFS) data, our results from Tobit regressions showed that traditional finance did not reduce the financing constraints of SMFBs, while digital finance significantly promoted SMFBs’ access to credit. Further analyses revealed that additional credit from digital finance helped SMFBs increase their business scale and operational capability, but decreased their profitability due to the high loan cost associated with digital finance. Our findings imply on the one hand that government policies aiming at encouraging commercial banks to provide loans to small and micro enterprises in China have been producing very limited effects. On the other hand, digital finance is an effective micro-loan provider for SMFBs thanks to its strong ability in collecting and integrating individuals’ credit history data, although more measures are needed to take for turning this financing enhancement of SMFBs into their profit growth. These findings enrich the literature on family business by comparing the effectiveness of different financing sources for SMFBs in China. It provides important insights for future policy design on how to ease financial constraints in SMFBs and support the development of SMFBs. Plain English Summary This study investigated the effects of traditional finance and digital finance on the financing of SMFBs in China. Tobit regression results indicated that traditional finance did not alleviate the financing constraints experienced by SMFBs. Despite the use of advanced financial technologies and the encouragement from government policies, commercial banks are still unwilling to extend credit to SMFBs. Digital credit, by contrast, enhanced the financial accessibility for SMFBs. Moreover, increased financing from digital finance was positively associated with SMFBs’ business expansion and operational ability, although it did not enhance the profitability of SMFBs in a short run. To effectively promote the financing and business success for SMFBs, efforts from multiple agents need to be taken. The owners of SMFBS should involve more in-depth in business operation and take greater responsibility for enterprise management. Policymakers should consider commercial banks’ objectives and interests, when encouraging them to lend to small and micro businesses, and monitor the true interest rate of digital financial services. Keywords: Traditional finance; Digital finance; SMFBs; Financing constraints (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:63:y:2024:i:3:d:10.1007_s11187-023-00857-0 Ordering information: This journal article can be ordered from DOI: 10.1007/s11187-023-00857-0 Access Statistics for this article Small Business Economics is currently edited by Zoltan J. Acs and David B. Audretsch More articles in Small Business Economics from Springer |
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