UC Davis Agricultural and Resource Economics

Jing Cai, University of Maryland

Direct and Indirect Effects of Financial Access on SMEs (Joint with Adam Szeidl)

Date and Location

Tuesday, May 18, 2021, 4:10 PM - 5:30 PM


We measure the direct and indirect effects of access to finance using a
randomized experiment with 3,100 firms in 78 local markets in China, which
created variation in firms’ access to a new loan product both within and
across markets. Our estimates imply that: (1) Financial access has large
positive direct effects. Providing access to a firm increases its revenue
by 9 percent, and also significantly increases profits, employment, the
number of clients and the use of trade credit. The new loan does not crowd
out existing loans. (2) Financial access has large
negative indirect effects. Providing access to all of a firm’s competitors
in the local market reduces its revenue by 7 percent, and also
significantly reduces profits, employment, the number of clients and the
use of trade credit. (3) In a model matched to the data in which
the indirect effect reflects business stealing, treating all firms in a
market would generate—despite nearly offsetting direct and indirect effects
on firms—sizeable welfare gains to consumers who benefit from competition.

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