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Credit cards and small business dynamics: Evidence from China

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  • Yuan, Yan
  • Rong, Zhao
  • Xu, Nana
  • Lu, Yiyang

Abstract

Small businesses are in general financially depressed; bank credits intended for consumption (here, credits from business owners' credit cards) may be switched to financing business operations, thereby enhancing small businesses' survival. By examining small enterprises in China with nationally representative data, this paper is among the first to provide direct evidence on the effects of credit card access on two aspects of small business dynamics: existing small businesses' survival (i.e., business exit) and households' decision to start new ones (i.e., business entry). We find that credit card access enhances informal small businesses' subsequent survival rates, and our IV estimations confirm the causality. We further find that this positive relationship is more pronounced among businesses with lower profitability, among businesses in lower digital finance inclusion regions, among aged businesses, and among businesses whose owners are risk averse or more financially knowledgeable. Regarding business entry, we find that credit card access contributes to households' propensity to start a formal business (i.e., a business in a formal organization form) but not an informal one.

Suggested Citation

  • Yuan, Yan & Rong, Zhao & Xu, Nana & Lu, Yiyang, 2021. "Credit cards and small business dynamics: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:pacfin:v:67:y:2021:i:c:s0927538x21000779
    DOI: 10.1016/j.pacfin.2021.101570
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    More about this item

    Keywords

    Credit card; Small business finance; Firm survival; Firm entry; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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