Corporate Demand for Financial Services and Issues in SME Finance

Author Name YAMORI Nobuyoshi  (Professor, Nagoya University)
Creation Date/NO. January 2006 06-J-003
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Since the adoption of the "Action Program Concerning Enhancement of Relationship Banking Functions" in March 2003, both government and regional financial institutions have made efforts to strengthen relationship banking functions. However, what SMEs really demand to regional financial institutions has not necessarily become clear. SMEs are of course highly diverse and major changes have occurred in the financial environment. Thus efforts to canvas the views of actual SMEs are essential in constructing the financial systems that companies want. This study surveyed 9,000 companies in the Kansai region (Osaka, Kyoto and Hyogo Prefectures) in June 2005, and questionnaires were returned by 2,041 firms. This paper sets out the results of the survey and examines corporate demands to regional financial institutions as well as policy issues for meeting those demands.

The questionnaire covered a wide range of key issues relating to SME finance and consisted of the following sections: I. Respondent attributes; II. Respondent company attributes; III. General questions on the company's business; IV. General corporate financial policy; V. Relationship with main bank; VI. General questions on banking; VII. Screening of SMEs by financial institutions; VIII. The credit guarantee system. By analyzing the survey results it was possible to clarify the status of regional finance - especially SME finance - in Japan and identify issues. Moreover, the questions were designed to facilitate comparison with a similar survey of companies in the Tokai region conducted separately by the author and with surveys by other institutions. As a result, it was possible to identify particular characteristics of companies in the Kansai region compared to those in other regions.

The structure of this paper is as follows: Section 2 briefly looks at the overall situation of companies in the Kansai region. Section 3 outlines the survey. Sections 4-9 analyze the responses to the questionnaire. Section 10 uses balance sheet data to analyze the relationship between companies' financial attributes and questionnaire responses. Due to data usability requirements, this analysis is limited to 745 of the respondent companies. Finally, Section 11 summarizes the policy implications of this study. The questionnaire used for the survey is appended.