Credit Constraints and Firm’s Productivity: Evidence from China’s Growth Enterprise Market

Abstract

Reliable and sufficient funding is essential for firms’ development. But in China, massive small and medium firms (SMEs) and innovation-oriented companies are struggling because of severe credit constraints. In this paper, we study the effect that credit constraints have on firms’ productivity. To do so, we collect 379 firms’ data from China’s Growth Enterprises Market (GEM). And we part the credit constraints into two kinds namely external and internal. Besides, some other factors, like the financial crisis happened in 2008, are also taken into account. By employing GLS and FGLS methods, we find that credit constraints do have a significant effect on firm’s productivity. What’s more, the experimental result shows that the 2008 Financial Crisis does change the funding situation for SMEs and innovation-oriented companies.