Non-parametric identification of public guarantee schemes and commercial banks

Abstract

The role of niche banks (i.e., single-market, local banks) and mega banks (i.e., large, multimarket, non-local banks) in financing small firms has attracted considerable attention. Public guarantee schemes are widely employed. In this study, the heterogeneous effects of a Chinese public guarantee scheme financing small firms by niche banks and mega banks are illustrated by semi-parametric logit models. The empirical results suggest that public guarantee funds have crowding-in effects on credit from niche banks while generating the crowding-out effects on credit from mega banks. Condition coefficient logit models show that, on the other hand, public guarantee promoted niche bank credit supply increase in two differing processes. On the one hand, public guarantee directly increased the probability of niche bank credit supply. On the other hand, by increasing the positive effect of enterprise profitability to the niche bank credit supply, the probability of bank credit supply is indirectly improved. These effects are not consistent with the aims of policymakers.