Empirical analysis on how to alleviate the financial constraints of Chinese small and medium-sized enterprises

This paper uses panel data of listed small and medium-sized enterprises (SMEs) in China from 2004 to 2012 to examine the sensitivity between investment expenditure and internal cash flow. The high investment-cash flow sensitivity reveals that SMEs face severe financial constraints. Some firms can partly solve this problem by alternative ways. One is to improve their efficiency of internal working capital management, and the other is to increase the level of external financing, but in some situation they are substitutive. We also find that the firm which has a higher fixed asset ratio or intangible asset ratio has stronger financing ability.