The influence of financial knowledge on the credit behaviour of small and micro enterprises: the knowledge-based view

The rich financial knowledge of small and micro business owners helps to enhance the formal credit demand of small and micro enterprises and change the credit channel preference of small and micro enterprises. The purpose of this paper is to explore the relationship between financial knowledge and the credit practices of 290 small and micro enterprises in China’s Jiangsu and Shandong provinces based on their formal credit needs and preferred channels of credit.

To measure the degree of the credit constraints of small and micro enterprises, this study applied questionnaire surveys to obtain information on the credit demand and supply of 363 small and micro enterprises in the Jiangsu and Shandong provinces. Firstly, a probit model is used to study the influence of financial knowledge on the formal credit demand and credit acquisition possibility of small and micro enterprises, and tool variables and a biprobit model are used to deal with the possible errors of endogenesis and sample selection. Secondly, a tobit model is used to study the influence of financial knowledge on the credit access of small and micro enterprises in different channels, and tool variables and a Heckman two-stage model are used to deal with endogenesis and possible errors in sample selection. Finally, this study carried out a series of robustness tests to make the conclusions more reliable.

This study is based on the perspective of the knowledge-based view to explore the impact of financial knowledge on the credit behaviour of small and micro enterprises. This study found that financial knowledge can increase a small and micro enterprise’s formal credit needs and drive the small and micro enterprise to actively apply for loans. Furthermore, financial knowledge has a significant and positive influence on the acquisition of formal credit and approved lines of formal credit and a significant and negative influence on the acquisition of informal credit and approved lines of informal credit.

The results indicated that increased financial knowledge can increase the likelihood of a small and micro enterprise to prefer formal credit and reduce the likelihood of it to prefer informal credit channels.

Financial knowledge is the ability to master basic economic knowledge and financial concepts as well as the ability to use knowledge to manage and allocate financial resources. The rich financial knowledge of small and micro business owners helps to enhance the formal credit demand of small and micro enterprises and change their credit channel preference. This paper offers a new perspective on the problems of credit constraint, low participation in formal credit markets and high participation in private credit markets among China’s small and micro enterprises and valuably supplements the research literature.