IDEAS home Printed from https://ideas.repec.org/a/gam/jijfss/v11y2023i3p102-d1214771.html
   My bibliography  Save this article

Nexus of Financing Constraints and Supply Chain Finance: Evidence from Listed SMEs in China

Author

Listed:
  • Sin-Huei Ng

    (School of Economics and Management, Xiamen University Malaysia, Sepang 43900, Malaysia)

  • Yunze Yang

    (Southampton Business School, University of Southampton, Southampton SO17 1BJ, UK)

  • Chin-Chong Lee

    (Nottingham University Business School, Nottingham University Malaysia, Semenyih 43500, Malaysia)

  • Chui-Zi Ong

    (School of Economics and Management, Xiamen University Malaysia, Sepang 43900, Malaysia)

Abstract

As opposed to developed markets, financing constraints are a more pressing issue among Small and Medium-Sized Enterprises (SMEs) in emerging markets. We explore the severity of financing constraints on SMEs, and examine the role of supply chain finance (SCF) in alleviating those constraints, with the focus on a large emerging market: China. Using the panel data of SMEs listed on Shenzhen Stock Exchange from 2014 to 2020, we employ robust estimations of panel-corrected standard errors (PCSEs) and robust fixed-effects methods to analyze the issue. Our cash–cash-flow sensitivity model points out that listed SMEs in China show significant cash–cash-flow sensitivity, and financing constraints are prevalent. We document that the development of SCF has a mitigation effect on the financing constraints on the SMEs. Our robustness test with Yohai’s MM-estimator is also supportive of the main finding. Our study indicates the importance of supply chain finance development in alleviating the financing constraints on SMEs and, subsequently, supporting their sustainability journey. Overall, our findings have important policy implications for the stakeholders involved in emerging markets, and there are lessons to be learned from the Chinese experience. There is still much to be explored in the nexus of SCF and the financing difficulties of SMEs in China at present, with much of the extant literature concentrating only on specific financing mechanisms. Thus, our study fills the gap by providing a broad and comprehensive analysis of the issue.

Suggested Citation

  • Sin-Huei Ng & Yunze Yang & Chin-Chong Lee & Chui-Zi Ong, 2023. "Nexus of Financing Constraints and Supply Chain Finance: Evidence from Listed SMEs in China," IJFS, MDPI, vol. 11(3), pages 1-16, August.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:3:p:102-:d:1214771
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7072/11/3/102/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7072/11/3/102/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    2. Wuttke, David A. & Blome, Constantin & Henke, Michael, 2013. "Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management," International Journal of Production Economics, Elsevier, vol. 145(2), pages 773-789.
    3. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    4. Zhang, Tiantian & Zhang, Cherry Yi & Pei, Qifan, 2019. "Misconception of providing supply chain finance: Its stabilising role," International Journal of Production Economics, Elsevier, vol. 213(C), pages 175-184.
    5. Bailey, Delia & Katz, Jonathan N., 2011. "Implementing Panel-Corrected Standard Errors in R: The pcse Package," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 42(c01).
    6. Abbasi Waseem Ahmed & Wang Zongrun & Alsakarneh Asaad, 2018. "Overcoming SMEs Financing and Supply Chain Obstacles by Introducing Supply Chain Finance," HOLISTICA – Journal of Business and Public Administration, Sciendo, vol. 9(1), pages 7-22, May.
    7. Steven M. Fazzari & Bruce C. Petersen, 1993. "Working Capital and Fixed Investment: New Evidence on Financing Constraints," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 328-342, Autumn.
    8. Sanjay Kallapur & Mark A. Trombley, 1999. "The Association Between Investment Opportunity Set Proxies and Realized Growth," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(3‐4), pages 505-519, April.
    9. Waseem Abbasi & Zongrun Wang & Asaad Alsakarneh, 2018. "Overcoming SMEs Financing and Supply Chain Obstacles by Introducing Supply Chain Finance," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(6), pages 165-165, April.
    10. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    11. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    12. Kristian Jönsson, 2005. "Cross‐sectional Dependency and Size Distortion in a Small‐sample Homogeneous Panel Data Unit Root Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 369-392, June.
    13. Sanjay Kallapur & Mark A. Trombley, 1999. "The Association Between Investment Opportunity Set Proxies and Realized Growth," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(3-4), pages 505-519.
    14. Vincenzo Verardi & Christophe Croux, 2009. "Robust regression in Stata," Stata Journal, StataCorp LP, vol. 9(3), pages 439-453, September.
    15. Bo Yan & Meng‐Ru Liang, 2023. "Alleviation effect of supply chain finance on financing constraints of high‐tech small‐ and medium‐sized enterprises," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1634-1641, April.
    16. WUTTKE, David A & BLOME, Constantin & HENKE, Michael, 2013. "Focusing the financial flow of supply chains: an empirical investigation of financial supply chain management," LIDAM Reprints CORE 2601, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    17. John Adams & Darren Hayunga & Sattar Mansi & David Reeb & Vincenzo Verardi, 2019. "Identifying and treating outliers in finance," Financial Management, Financial Management Association International, vol. 48(2), pages 345-384, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Weiping & Chen, Xiaoqi & Huang, Jiashun & Gong, Xu & Wu, Wei, 2022. "Do environmental regulations affect firm's cash holdings? Evidence from a quasi-natural experiment," Energy Economics, Elsevier, vol. 112(C).
    2. Brown, James R. & Petersen, Bruce C., 2015. "Which investments do firms protect? Liquidity management and real adjustments when access to finance falls sharply," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 441-465.
    3. Théo Nicolas, 2022. "Short-term financial constraints and SMEs’ investment decision: evidence from the working capital channel," Small Business Economics, Springer, vol. 58(4), pages 1885-1914, April.
    4. Wetzel, Philipp & Hofmann, Erik, 2019. "Supply chain finance, financial constraints and corporate performance: An explorative network analysis and future research agenda," International Journal of Production Economics, Elsevier, vol. 216(C), pages 364-383.
    5. Samuel Jebaraj Benjamin, 2019. "The Effect of Financial Constraints on Audit Fees," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 59-87.
    6. Lou, Zhaohui & Xie, Qizhuo & Shen, Jim Huangnan & Lee, Chien-Chiang, 2024. "Does Supply Chain Finance (SCF) alleviate funding constraints of SMEs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    7. Gyimah, Daniel & Siganos, Antonios & Veld, Chris, 2021. "Effects of financial constraints and product market competition on share repurchases," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    8. Heitor Almeida & Murillo Campello & Igor Cunha & Michael S. Weisbach, 2014. "Corporate Liquidity Management: A Conceptual Framework and Survey," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 135-162, December.
    9. Williamson, Rohan & Yang, Jie, 2021. "Tapping into financial synergies: Alleviating financial constraints through acquisitions," Journal of Corporate Finance, Elsevier, vol. 68(C).
    10. Horvath, Akos & Lang, Peter, 2021. "Do loan subsidies boost the real activity of small firms?," Journal of Banking & Finance, Elsevier, vol. 122(C).
    11. José Manuel Mansilla-Fernández & Juliette Milgram-Baleix, 2023. "Working capital management, financial constraints and exports: evidence from European and US manufacturers," Empirical Economics, Springer, vol. 64(4), pages 1769-1810, April.
    12. ElBannan, Mona A., 2021. "On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries," Emerging Markets Review, Elsevier, vol. 47(C).
    13. Cui, Weihan & Cuong, Ly Kim & Shimizu, Katsutoshi, 2020. "Cash policy and the bank-firm relationship," Economic Modelling, Elsevier, vol. 91(C), pages 804-818.
    14. Zhang, Wen & Yan, Shaoshan & Li, Jian & Tian, Xin & Yoshida, Taketoshi, 2022. "Credit risk prediction of SMEs in supply chain finance by fusing demographic and behavioral data," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    15. Ahrends, Meike & Drobetz, Wolfgang & Puhan, Tatjana Xenia, 2018. "Cyclicality of growth opportunities and the value of cash holdings," Journal of Financial Stability, Elsevier, vol. 37(C), pages 74-96.
    16. Bigelli, Marco & Martín-Ugedo, Juan Francisco & Sánchez-Vidal, F. Javier, 2014. "Financial conservatism of private firms," Journal of Business Research, Elsevier, vol. 67(11), pages 2419-2427.
    17. Usman, Adam, 2022. "Cash holdings and real asset liquidity," International Review of Financial Analysis, Elsevier, vol. 83(C).
    18. Chang, Yanhao & Benson, Karen & Faff, Robert, 2017. "Are excess cash holdings more valuable to firms in times of crisis? Financial constraints and governance matters," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 157-173.
    19. Dhole, Sandip & Mishra, Sagarika & Pal, Ananda Mohan, 2019. "Efficient working capital management, financial constraints and firm value: A text-based analysis," Pacific-Basin Finance Journal, Elsevier, vol. 58(C).
    20. Paweł Mielcarz & Dmytro Osiichuk & Paweł Wnuczak, 2018. "Working Capital Management through the Business Cycle: Evidence from the Corporate Sector in Poland," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(2), June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijfss:v:11:y:2023:i:3:p:102-:d:1214771. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.