Does Supply Chain Finance (SCF) alleviate funding constraints of SMEs? Evidence from China

Abstract

Financing constraints have always been a common problem for small- and medium-sized enterprises (SMEs) around the world, but the emergence of supply chain finance (SCF) has largely helped to ease such constraints on their bank financing. This research expands the cash-cash flow sensitivity model and examines the effect and mechanism of SCF on alleviating the financial constraints of 740 firms listed in the SME Boards and Growth Enterprise Market (GEM) of the Shanghai and Shenzhen Stock Exchanges from 2010 to 2017. The results show that SMEs in China overall suffer from financial constraints, and the degree of the constraints is greater for private SMEs than state-owned SMEs. Furthermore, the constraints faced by SMEs in the central and western regions are more severe than those in the eastern region, the constraints in the tertiary industry are more severe than those in the primary or secondary industry, and the constraints for innovative SMEs are more severe than non-innovative SMEs. It is also found in this paper that SCF more mitigates the financial constraints on SMEs, particularly private SMEs, innovative SMEs, and those locating in the central and western regions, than on state-owned SMEs, non-innovative SMEs, and those locating in the east regions. These findings provide important policy implications for governments, financial institutions, and firms alike.