Abstract
The central aim of this article is to shed light on why a firm in need of credit is unwilling to borrow and why its loan application might be rejected. Based on the 2015 China Micro and Small Enterprise Survey, our analysis reveals that the discouragement rate is significantly higher than the rejection rate. A flexible trivariate additive model is adopted to correct for the double sample selection bias that is largely ignored by previous studies. We find that firm's age, size, R&D, private debt, accounts receivable and core business are robust indicators of being discouraged. As for the rejection rate, larger firms, those with government support and those in the manufacturing sector are less likely to be rejected, while firms with private debt face higher rejection probability. In addition, we find that older firms are generally less likely to be rejected but the rejection rate rises when the firm's age exceeds 20 years. Finally, our empirical evidence lends little support to ownership discrimination in the Chinese credit market.
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