How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, we employ a difference-in-differences approach with the propensity score matching (PSM-DID) and compare Hubei SMEs’ credit responses before and after the outbreak relative to those of non-Hubei SMEs. Our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak.
Bibliographical noteFunding Information:
We would like to thank Roy Thurik (Guest Editor) and two anonymous referees for their insightful comments. We also thank Povilas Lastauskas and other participants for their excellent suggestions at the Virtual Paper Development Workshop ?Economic Effects of the COVID-19 2020 Pandemic on Entrepreneurship and Small Firms.? All errors are our own.
© 2021, The Author(s), under exclusive licence to Springer Science+Business Media, LLC part of Springer Nature.
- Chinese Economy
- Line of Credit