Household Business Credit Constraints in China - Economics Seminar

Event Date: 1 March 2023

Speaker: Rongrong Sun, University of Dundee

Time: 4-5:15pm

Location: Please contact Rachel Hill (r.hill@strath.ac.uk) for Zoom details. On campus: TL455

Abstract: "This paper traces the demand and supply sides of the small business bank credit market and estimates them simultaneously in a three-stage nonlinear sequential logit model, using China’s household survey data. I examine the factors influencing three decisions: the household’s decisions on whether to need credit and whether to apply, and the bank’s decision on whom to grant loans to. The findings suggest that household economic situation, risk attitude, financial literacy, and education level all contribute to explaining the heterogeneity in household preferences, application costs, and chances of getting bank loans. There is no evidence of age, sex, or ethnic discrimination in credit granting. First, I find that households without savings, with high assets, and with informal loans are more likely to want bank loans. The household head’s financial illiteracy and risk aversion decrease the probability of household demand for business loans. Second, I find that the decisions for loan applications conditional on positive demand depend on household wealth and the household head’s age. Finally, the results shed light on how banks assess prospective borrowers in the household business credit market. In particular, banks value households with high assets and savings while issuing loans. An educated household head is also valued."

Published: 15 February 2023