Month of Issue

February 2017


Does Local Financial Development Matters for the Performance of Small and Medium Enterprises: Evidence from China


Yingying Fang
Go Yano


Graduate School of Economics, Kyoto University


Local financial development, SMEs, Private enterprises, Small-sized enterprises


By using the data of non-listed enterprises, and employing several macro-level financial proxies, this study investigates whether local financial development matters for the performance of SMEs in China. Taking both supply and demand sides into consideration, an overall positive correlation has been found between local financial development and SMEs’ performances, and it is more pronounced for SMEs in the industries with more growth opportunities. The relationship is robust with different measurements of local financial development, including both local credit supply and quality of local financial market, and it holds not only at the provincial level but also at the prefecture–city level. Moreover, the heterogeneity within enterprises is also illustrated. Although the development of local financial markets could help to alleviate the financial constraints of private and small enterprises and thereby lead to better firm performance, non-private or medium-sized enterprises still have significant advantages in making use of local financial resources.