Do Social Capital Building Strategies Influence the Financing Behavior of Chinese Private Small and Medium–Sized Enterprises?

Using data from 65,485 Chinese private small and medium–sized enterprises over the period 2000–2006, we examine the extent to which firms can improve access to debt by adopting strategies aimed at building social capital, namely entertaining and gift giving to others in their social network, and obtaining political affiliation. We find that although entertainment and gift–giving expenditure leads to higher levels of total and short–term debt, it does not enable firms to obtain greater long–term debt. In contrast, we demonstrate that obtaining political affiliation allows firms greater access to long–term debt.