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Targeted monetary policy and financing constraints of Chinese small businesses

Author

Listed:
  • Chaoying Lin

    (Fuzhou University)

  • Lerong He

    (Fuzhou University
    State University of New York College at Brockport)

  • Guangqing Yang

    (Fuzhou University
    Minjiang University)

Abstract

This study examines the effect of targeted easing (TE), an unconventional monetary policy designed to reduce reserve requirement ratios (RRR) of selected financial institutions, on reducing financing constraints of Chinese small businesses. Using a longitudinal sample of listed small businesses between 2003 and 2018, we find that the implementation of a TE policy significantly reduces financing constraints of small businesses as measured by the cash flow sensitivity. In addition, the policy effect is stronger when reductions in RRR are targeted at financial institutions specialized in small business lending than at banks with a threshold level of small business loans. We also document that small businesses with larger financing needs benefit significantly more from the TE policy and experience a larger reduction in their financial constraints. Moreover, the TE policy effect is more salient in state-owned small businesses than privately controlled enterprises. These results are also robust to alternative measures of financing constraints.

Suggested Citation

  • Chaoying Lin & Lerong He & Guangqing Yang, 2021. "Targeted monetary policy and financing constraints of Chinese small businesses," Small Business Economics, Springer, vol. 57(4), pages 2107-2124, December.
    • Handle: RePEc:kap:sbusec:v:57:y:2021:i:4:d:10.1007_s11187-020-00365-5
    DOI: 10.1007/s11187-020-00365-5
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    More about this item

    Keywords

    Monetary policy; Targeted easing; Financing constraints; Small business; China;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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