The impacts on informal financing strategy of small and micro enterprises by interest rate risks and public health emergencies

Fuming Yang (), Xixi Ye, Weilun Huang () and Xuemeng Zhao ()
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Fuming Yang: Wenzhou Business College, Wenzhou Polytechnic
Xixi Ye: Shanghai University of Finance and Economics
Xuemeng Zhao: School of Management

International Entrepreneurship and Management Journal, 2023, vol. 19, issue 4, No 6, 1673-1705

Abstract: Abstract Informal finance is a crucial financing method for small and micro enterprises (SMEs) in most developing countries. Interest rate risks (IRS) should be a vital component of SMEs' informal finance strategies (IFS), and public health emergencies (as COVID-19) is likely to modify IFS due to increased liquidity risks for SMEs. This article examines the relationship between IRS and IFS and its moderated effects by COVID-19. The study develops a structural equation model of SMEs' IFS to investigate SMEs' IFS, the causal relationship between IRS and SMEs' IFS, mediator effects of SMEs' corporate financial status and regional financial and economic conditions, and moderating effects of SMEs' variables. The empirical data is from Wenzhou, China, distributed between 2016 and 2021. The study concludes that IFS will continue to be a financing technique for Chinese SMEs, even if it may have a deterrent effect due to COVID-19. Additionally, there is a strong positive causal association between IFS and SMEs' IRS, as well as moderator and mediator effects. Recommendations for government policy include clarifying the connection between SMEs' IFS and influencing variables, providing scientific and methodical analysis tools for evaluating factors impacting SMEs' IFS, and encouraging the optimization and upgrading of SMEs' IFS.

Keywords: Informal financing strategy; Small and micro enterprises; Interest rate risks; Public health emergencies (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11365-023-00872-3

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