The Impact Of Bank Connection On Private Enterprises Financial Constraints

Since the reform of state-owned enterprises, the proportion of private economy is gradually increasing in the national economy. But credit resources obtained by the private enterprise are quite limited. Small micro enterprise not only, but also to a varying extent in large and medium-sized private enterprises reflect the external capital demand, dependence on bank loans and the actual difficulties in financing. This dilemma is largely caused by China's financial system arrangement, China's financial system is given priority to with bank indirect financing, and slow development of capital market and direct financing channels, and crucially, the government have strong control on credit resources.Under the current financial system, private enterprises are vulnerable to bank credit discrimination, and it is more difficult for them to get enough credit support from formal financing. In addition to this, financing costs of private enterprises are much higher, and they are often plagued by financing constraints. In this background, this article will explore other alternative mechanism to ease the credit discrimination caused by the nature of the ownership differences of private enterprises, and explore whether the bank connection can help private enterprises to get enough credit support from the formal channels, and to ease external financing constraint, strengthen for the private enterprise capital foundation.Using the data of small and medium-sized board listed private companies from their IPO prospectus; we do empirical research on the impact of bank interpersonal connection on private enterprises financing constraint. We find that bank interpersonal connection can significantly ease the private enterprise financing constraints, and political connection is the same. The Two types of connection have substitution effect. Liabilities and short-term bank borrowing of private enterprises with bank interpersonal connection are significantly higher than those without bank interpersonal connection. But there are no significant differences between the two types of private enterprises about long-term bank borrowing. In terms of financing costs, we do not find bank interpersonal connection could lower funding costs.After considering the change of the banking competition situation, we found that the banking competition index (HHI index), banking connection (BAN) and the company's operating cash flow (CF) three interaction term is negative, indicates the banking competition associated with the bank's influence on financing constraints exist trade-off. As the banking competition has intensified, banks associated alleviate the effect of financing constraints is waning. At the same time shows that through perfecting the formal financial system and the establishment of the informal financial institutions are able to solve the financing difficulties of private enterprises. And the substitution effect, our research from the perspective of bank association for formal system and informal system substitution effect provides new theoretical support, and for private enterprises in a formal system is not sound market provides a new thought of practical ease the financing constraints.In conclusion, our study conclusion is helpful to understand the status of the private enterprise development in our country, deepen our understanding of the informal financial system and operation mechanism, but also enriched literature research on the series of informal institutional arrangements during the period of transition, to fully unlock "Chinese puzzle" provide help.