The Impacts Of Credit Market Competition On Financing Constraints Of SMEs

The interpretation of information economics on the allocation of credit funds promotes the research on the financing constraints of SMEs.However,the literature over the past two decades shows that it is difficult to reach a consensus on the interpretation of SMEs’ financing constraints at the level of credit market,and more and more policy measures begin to lack a consistent theoretical basis.The financing constraints problems of SMEs need a complete analytical framework to reconcile theoretical differences and provide a reasonable explanation for economic practice.Based on the holistic approach of credit market,along with the description of competitive dynamics by dynamic game model of incomplete information,this paper demonstrates the clear mechanism of how credit market competition affects financing constraints of SMEs.This paper reinterprets the important influencing factors related to SMEs’ financing,including the risk distribution of SMEs group,characteristics of credit information,efficiency of bank information investment,difference of bank capital cost,degree of credit rationing and the level of information rent,which work together and affect the financing constraints of SMEs.This paper goes beyond the classical hypothesis of relationship lending and "Small Bank Advantage",instead,emphasizes the bank-bank information asymmetry and information rent extracted.In this paper,the fundamental conclusions are reached:(1)Bank information investment and information rent extracted are endogenous from competitive dynamics of SMEs credit market.(2)The higher the information investment efficiency of small banks is,the more economic efficiency the credit resource allocation of SMEs will be,unfortunately,the information rent lowers the economic efficiency.The main conclusions of this paper are reached:(1)Bank competition does not necessarily alleviate the financing constraints of SMEs,and it’s conditional for bank competition to alleviate the financing constraints of SMEs as a market mechanism.(2)In the credit market dominated by large banks,the information investment efficiency of credit for SMEs is relatively low,bank competition undermines the formation of relevant credit technologies for SMEs,which is not conducive to their financing.(3)In the credit market dominated by small and medium-sized banks,the information investment efficiency of credit for SMEs is relatively high,bank competition can reduce the level of information rent,which is conducive to their financing.Using the two-step difference GMM method of dynamic panel-data estimation,this paper confirms the heterogeneous effects from the aspects of regional bank competition and bank structure.That is,in the credit market dominated by large banks,bank competition worsens the financing constraints of SMEs,in the credit market dominated by small and medium-sized banks,bank competition alleviates the financing constraints of SMEs.Based on the theoretical interpretation and main conclusions of this paper,at the end of this paper,specific policy proposals are put forward from the perspectives of bank-enterprise information asymmetry,bank-bank information asymmetry and government regulation,and some specific government regulation measures are questioned.