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Bank Size and Small- and Medium-sized Enterprise (SME) Lending: Evidence from China

Authors
Journal
World Development
0305-750X
Publisher
Elsevier
Publication Date
Volume
37
Issue
4
Identifiers
DOI: 10.1016/j.worlddev.2008.07.014
Keywords
  • Sme Lending
  • Bank Size
  • Loan Approval Rights
  • Reduced-Form Approach
  • Soft Information
Disciplines
  • Design

Abstract

Summary Using panel data collected in 2005, we evaluate how bank size, discretion over credit, incentive schemes, competition, and the institutional environment affect lending to small- and medium-sized enterprises in China. We deal with the endogeneity problem using instrumental variables, and a reduced-form approach is also applied to allow for weak instruments in estimation. We find that total bank asset is an insignificant factor for banks’ decision on small- and medium-enterprise (SME) lending, but more local lending authority, more competition, carefully designed incentive schemes, and stronger law enforcement encourage commercial banks to lend to SMEs.

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