Unlocking SME growth: Analyzing the government subsidies’ impact on financing in China

Wenjing Sun, Zheng Wang, Yongxin Huang and Yifan Li

PLOS ONE, 2024, vol. 19, issue 8, 1-29

Abstract: Small and medium-sized enterprises (SMEs) were an important part of China’s economy, but they faced challenges to growth due to financing difficulties. Government subsidies are considered as a potential way to address this problem. This study aims to assess the effectiveness of the Chinese government’s subsidy program aimed at improving the accessibility of financing for SMEs. We analyze a comprehensive dataset of Chinese firms’ subsidy programs from 2011 to 2020. We classify subsidies into unconditional and conditional categories and use fixed-effects regression models to control for the effects of time and between-group variation to more accurately assess the effectiveness of government subsidies. In addition, we use a PSM-DID model to reduce the effect of selectivity bias to more accurately estimate the causal effect of subsidies on financing strategies. We also use a mediated effects model to help understand the mechanisms by which different types of subsidies affect financing strategies. The results show that government subsidies can significantly improve SMEs’ financing ability, but different types of subsidies produce subtle differences. Conditional subsidies support debt financing mainly through incentives, while unconditional subsidies help SMEs improve their equity financing ability through information effects. Furthermore, we find that over-reliance on a single subsidy type may reduce its effectiveness, suggesting a complex relationship between government intervention and SME financing. Thus, well-designed policies are crucial for promoting SMEs and fostering economic growth.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0304589

DOI: 10.1371/journal.pone.0304589

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