Investment in Social Capital and Financing Constraints of Small and Medium-sized Enterprises: Empirical Analysis on Small and Medium-sized Board Listing Companies in China

Using the Euler investment model, this paper explores the dynamical effects of social capital investment on financial constraints of small and medium-sized enterprises. Based on the performance of small and medium-sized boardlisting companies of Shenzhen Stock Exchange between 2008 and 2012 in China, the paper tests empirically the relieving impact of social capital investment on the financing restraints of those companies. Theresult shows that the investment of SMEs in China is significantly positive to cash flow, and there exists obvious financial constraints. It is also found that entertainment expenditure and obtaining direct political connections are effective strategies to build relational social capital by SMEs, which can to a great extant reduce such kind of constraints.