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How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, we employ a difference-in-differences approach with the propensity score matching (PSM-DID) and compare Hubei SMEs’ credit responses before and after the outbreak relative to those of non-Hubei SMEs. Our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak. Plain English Summary Chinese SMEs’ credit demand deteriorated after the COVID-19 outbreak, though supported by the state-owned banks. How does the COVID-19 affect SMEs’ financing in emerging markets? In this paper, we investigate the impact of the COVID-induced shock on Chinese SMEs’ line of credit (LOC) using deal-level data. As Hubei province was mostly affected, our results suggest that Hubei SMEs’ credit demand reduced significantly compared to that of non-Hubei SMEs, and the adverse effects were more pronounced for the non-state-owned enterprises (non-SOEs) and the SMEs without prior bank relationships. Moreover, we show a negative impact on non-Hubei SMEs having supply chain relationships with Hubei province. Such effects rippled through the supply chain and exerted an intensified strike on the SMEs with Hubei customers. Finally, we find the state-owned banks eased the LOC to Hubei SMEs during the pandemic outbreak. According to our study, government COVID-supportive policies should target the SME subgroups such as non-SOEs, firms that heavily rely on supply chain, and those without stable bank relationships.

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Share pledging, the practice in which shareholders secure a loan using their shares, has become a global phenomenon in recent years. In this paper, we investigate the effect of such corporate insider actions on outsider wealth during the pandemic. Concretely, we examine how firms' market value change when corporate insiders pledge their shareholdings during China's COVID-19 outbreak. It is found that market investors responded adversely to share pledging announcements by firms in the high pandemic-affected regions. Besides, the state ownership and better corporate governance structures of the pledged firms could mitigate such adverse impacts. Our study highlights a specific externality generated by corporate insiders to outside shareholders during a crisis period.

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