Financial Agglomeration, Bank Enterprise Distance, and SME Performance: Evidence from China

Jianpei Li (), Lidong Ma () and Bowen Li ()
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Jianpei Li: Guangdong University of Finance
Lidong Ma: Jinan University
Bowen Li: Lanzhou University

Journal of the Knowledge Economy, 2025, vol. 16, issue 2, No 80, 8172-8197

Abstract: Abstract Small and medium-sized enterprises (SMEs), which account for about 90% of all market players, the improvement of their total factor productivity (TFP) is related to the high-quality development of China’s economy. Different from the existing research that mainly uses the agglomeration degree of financial resources in a specific geographical unit as a measure of the financial geographical structure, this paper takes enterprises as the center of the circle and measures the level of financial agglomeration by calculating the number of financial institutions within a certain radius. Using the information of 240,000+ financial institutions in China from 2012 to 2020 and the data of 3047 SMEs on the New Third Board, this paper profoundly explores the impact of financial agglomeration on the performance of SMEs. Specifically, when the distance between banks and SMEs is within 5 km, the greater the number of financial institutions around the SMEs, the higher the level of financial agglomeration faced by the SMEs, and the more significant the promoting effect of financial agglomeration on the SMEs TFP. The mechanism analysis shows that reducing the financing constraints of SMEs and increasing the R&D investment of SMEs are two essential channels for financial agglomeration to improve the TFP of SMEs. Further research found that financial agglomeration mainly promoted the improvement of TFP of non-state-owned SMEs, SMEs in the eastern region, and high-asset SMEs.

Keywords: Financial agglomeration; Small and medium-sized enterprises; Distance between banks and enterprises; Total factor productivity (search for similar items in EconPapers)
JEL-codes: D24 G20 G32 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13132-024-02065-x

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