Abstract/Summary

This thesis explores the impacts of financial development on SME finance by using a comprehensive database from World Bank with samples from 134 countries. It contributes to the research areas in both financial development and SME finance. In particular, it deepens our understanding of the significant role played by financial development on SMEs in terms of both demand (seeking finance) and supply (trade credit) for finance. The thesis contains three pieces of empirical research on SME finance. First, this thesis provides literature review and some background statistics on financial development and SME finance especially in emerging economies, showing clear variations of SME financing patterns between emerging and developed markets and shed light on the important role played by financial development in financing SMEs. Second, this study investigates the effects of financial development and institutional framework on the access to external finance by SMEs. The primary results support the important roles played by financial development and institutional framework in the country where SMEs operate. Specifically, with financial development, SMEs are more likely to use formal sources of external finance (e.g. from both bank and non-bank institutions) than use informal finance (e.g. private), in terms of both short term and long term demand for finance. Last, this thesis analyses how financial development affects the supply of trade credit by SMEs to their customers. SMEs in those countries with a higher level of financial development provide more trade credit to their customers and vice versa, supporting the favourable effects of financial development on the supply of trade credit by SME as financial intermediary. Additionally, this study shows novel evidence on the moderating effects of institutional framework (i.e. legal systems) on the favourable role played by financial development in the supply of trade credit by SME.