Bank competition and firm asset- debt maturity mismatch: Evidence from the SMEs in China

Abstract

By employing a unique financial capacity survey sent to the managers of small and medium-sized enterprises (SMEs) in China, we empirically investigate the effect of bank competition on the asset-debt maturity mismatch of SMEs. We find that bank competition has a negative effect on the probability of SMEs’ maturity mismatch of investment and financing. We further find that as bank competition intensifies, SMEs would obtain loans with longer maturities and are also less likely to conduct maturity mismatch with increased information asymmetry. This implies that the competition in banking industry alleviates SMEs’ maturity mismatch by increasing banks’ speculative motives. Moreover, the negative effects of bank competition on the maturity mismatch of SMEs are more pronounced for the competition within state-owned banks and within local commercial banks, and also for the SMEs with the expectation of monetary tightening. Our results have important implications for policymakers to improve the efficiency of the financial system and to reduce the financing dilemma of SMEs.