The role of venture capital in China's SME loans
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(Published version)
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2020
Authors
Wu, L.
Xu, L.
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Research in International Business and Finance, 2020; 51(101081):1-16
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We examine the role of venture capital (VC) in small and medium-sized enterprise (SME) loans through samples on the National Equities Exchange and Quotations (NEEQ) in China. We find that VC backup can effectively improve SMEs’ access to bank loans, especially short-term loans, at lower costs, and loans without collateral. VC backed loans are also less likely to default and positively related to SMEs’ performance. Our findings further suggest that VC backup reduces the information asymmetry between banks and SMEs through both “hard” information of better-quality financial statement and “soft” information of SMEs’ creditability. Evidenced by enhanced SME financing conditions and bank efficiency in loan allocation, the combined debt-equity financing scheme can be a meaningful new ingredient in the financial infrastructure of the largest emerging market.
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Copyright 2019 Elsevier
Access Condition Notes: Accepted manuscript available after 1 July 2022