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Credit Rationing and Firm Exports: Micro Evidence from SMEs in China

Cheng, Dong and Tan, Yong and Yu, Jian (2017): Credit Rationing and Firm Exports: Micro Evidence from SMEs in China.

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Abstract

In this study we examine the effect of credit rationing on export performance for small and medium sized firms in China. We use a detailed firm-level data provided by the Small and Medium-sized Enterprises Dynamic Survey (SMEDS) to conduct this analysis. SMEDS provides firm-specific measures of credit rationing based directly on firm-level responses to the survey rather than indirectly from firm-level financial statements. We find that, at the extensive margin, weak and strong credit rationing reduce SMEs' export probability by 22% and 36%, respectively. At the intensive margin, they decrease SMEs' export values by more than 32% and over 66%, respectively. Different from existing literature, we construct valid firm-level instruments, firm-level housing investments and receivables, for credit rationing rather than using province-level instruments. In addition, credit rationing exhibits heterogeneous impacts on firms with different liquidity ratios, product portfolios, external collateral and capital utilization rates.

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