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Financial relationships, banking structure and financing constraints: Evidence from private enterprises in China

Jiang Shui-quan, Liu Xing, Luo Jin-chuan

Continuous external financing is the important factor to promote the rapid development of enterprises. However, at present, too much political interference and the state-owned bank dominated financial system seriously affect the efficiency of resource allocation in the key period of economic transition and social transformation of china. Most of the resources were allocated into state-owned enterprises. Private enterprises still face serious financing discrimination. A large number of studies have shown that relationship and reputation mechanism can partially make up for the inadequacy of formal system in emerging markets. Based on the sample of non-financial listed private enterprises in the Shanghai and Shenzhen stock, reference to the Almeida’s cash - cash flow model, we investigated the relationship between financial relationships, bank competition and financing constraints of china's privatized enterprises. We found that not only the establishment of financial relationships, but also boosting market share of small and medium-sized banks or can significantly ease the financing constraints of private enterprises. But they substitute to alleviate the financial constraints of private enterprises