Can bank branch establishment help SMEs survive? Evidence from China

In this study, we trace the survival of 18,118,907 Chinese SMEs from 2000 to 2010. We use flexible parametric survival analysis, the Cox model, the Kaplan-Meier survival function, and IV-Tobit to assess the policy effects of Chinese financial reforms that rely on the establishment of more bank branches to impact the survival of SMEs. According to the findings, SMEs in China face a severe survival dilemma, with more than 50% failing in their first year of existence and approximately 80% not surviving more than 10 years. However, the establishment of more bank branches does help improve this phenomenon. The survival hazard of SMEs decreases as the number of branches around them increases. Nonetheless, here are certain necessary conditions for the policy to be effective. From the standpoint of financial supply, the establishment of bank branches is only beneficial to the survival of SMEs when the banks and firms are geographically close or the branches are small- or medium-sized. From the standpoint of financial demand, the establishment of bank branches is beneficial to the survival of larger and eastern-based SMEs.