Abstract: Folk financing has played what role in thedevelopment of China's private enterprises? When private enterprises in the face of "CreditDiscrimination", by what ways to obtain the required capital for development? What kind of relationship exists between folk financing and private corporate funding requirements? Folk financing has what kind of impact on private enterprises debt financing? What kind of relationship between folk financing and private enterprises bank loans? We use 2006-2011 years listed on the Shanghai and Shenzhen two cities of private enterprises as samples, use the development of the enterprises financing difficulty from the private channel to measure the folk financing. By examining the relationship between folk financing with private enterprises total liabilities and bank loans, trying to make up for these shortcomings. First: the difficulty of folk financing for private enterprises has an important impact on debt financing, the higher the level of development of folk financing, private enterprises more easy to obtain funds from private, private enterprises debt more; Second: the higher the level of development of folk financing, private enterprises debt financing are more, but the private enterprises’ bank loans decreased.Keywords: Private enterprises; Financing Constraints; Folk Financing; Bank LoansⅠ. IntroductionFolk financing, also known as private lending, People's Bank of China considering that folk financing are with respect to the financial transactions by state-approved financial institution. Refers to the monetary value as the underlying funds transfer and the principal and interest payments between naturalpersons, enterprises and other economic entities(except financial). Kropp et al.considered that the state or government usually establish the central bank to regulate economic, those market outside of the regulation were defined as non-formal finance. Isaksson et al.believed that informal financial sector is the financial activities of certain sectors of the economy arenot regulated and controlled by the State. Folk financing as an integral part of China's financial system has become a useful complement to the formal financial financing methods, occupies a huge share of our entire financial system, play an important role in promoting the rapid development of the national economy.According to CICC research report estimates, Chinese private lending balances in the middle of the 2011, grow 38% compared to the same period, reached 3.8 trillion yuan, accounting for the total size of the shadow banking China loans (CICC estimates) of about 33%, equivalent to 7% of the total bank loans.After nearly 30 years of development, the private economy has become an important force in our national economy forward, has become an important part of our economy, and made great contributions to the economic development of our country. But in our transition economy background, because the lack of institution, the legal system is notperfect, the financial service is backward, andlong-standing political and ideological "Discrimination" and other reasons, private enterprises and state-owned enterprises is very difficult to obtain the same in a fair market competition position. Currently in debt financing of private enterprises in China also have been discriminated against, China's current financial system is still dominated bythe big four state banks, although with the continuous reform of management system of banking industry, state-owned banks also began applying the principle of market economy principles to credit decisions, but the government as the ultimate controlling shareholders and ownership of state-owned banks, still dominates the bank credit resource allocation, leading to more bank credit resources allocation to the same ultimate controller and owner as government-ownedenterprises, private enterprises is difficult to obtain bank credit support..Although China's private enterprises suffered serious credit discrimination, but the rapid development of private enterprises is an indisputable fact, and the rapid development of China's private enterprises and private lending expanded rapidly during the period of staggering synchronization, whether this is just coincidence, or inevitable result? What kind of relationship exists between folk financing and private corporate funding requirements? Folk financing has what kind of impact on private enterprises debt financing? And by "Credit Discrimination" private enterprises bank loans, what is the relationship between? The existing literature is seldom reported in this area.We use 2006-2011 years listed on the Shanghai and Shenzhen two cities of private enterprises as samples, use the development of the enterprise financing difficulty from the private channel to measure the folk financing.By examining the relationship between folk financing with private enterprises total liabilities and bank loans, trying to make up for these shortcomings. The results showed that:First: the difficulty of folk financing for private enterprises have an important impact on debt financing, the higher the level of development of folk financing, private enterprises more easy to obtain funds from private, private enterprises debt moreSecond: the higher the level of development of folk financing, private enterprises debt financing are more, but the private enterprises bank loans decreased.Ⅱ. Innstitutional Background and HypothesesA.Private Enterprises Financing ConstraintsCompared with the State-owned enterprises,China's private enterprises have been limited in many ways, such as financing, market access and so on. Brandt and Lipointed out that in China's institutional environment, private owners and their companies have been unfairly treated in external financing, at a disadvantage position. Fan et al.also pointed out that therelevant Chinese laws and regulations is unjust to treat private enterprises, including external financing conditions more demanding, and China's financial sector also reluctant to provide loans to private enterprises. In general, the private corporate debt financing difficulties due to the following aspects: (1)Private enterprises owned tangible and intangible assets (particularly goodwill) less limited ability to obtain mortgages and credit loans from banks, and financial institutions in fact also exist for different ownership enterprises credit policy differences; (2)The credit guarantee system has not yet formed, guarantee agencies less, varieties of a single, system is not perfect, it is difficult to meet the needs of the development of private enterprises; (3)Some private enterprises lack of honesty,and enterprise credit information collection and evaluation system deficiencies, causing financial institutions to private enterprises“Credit Crunch” and social capital for private enterprises, “Reluctant to Invest”phenomenon.B. Folk Financing DevelopmentAt present the reason for the development of folk financing mainly has two viewpoints.One view thinks that the cause of folk financing in China is generated by the“Financial Repression” policy, the formal financial sector “Credit Rationing” behavior, so that the private enterprises cannot get enough financial resources within the system.Second point considered formal finance and folk financing coexist was produced by the information asymmetry of market segmentation. In addition, due to some historical reasons, the financial system of China's private enterprises transparency is low,companies often do not use formal accounting system or to keep several sets of financial books. What is more, some small andmedium private enterprises for the purpose of tax evasion to conceal its true financial information, but also exacerbated the problem of information asymmetry faced by bank credit.The development and growth of private enterprises in need of funds to support, lack of access to economic resources such as bank loans within the system (market-oriented approaches), the private enterprises began to consider non-market-based measures (such as folk financing) to obtain the necessary economic resources for development. Based on the above analysis, this paper verified hypothesis on the following.H1: Folk financing and private enterprises debt financing is positively related-- the higher the level of development in the areas of folk financing, the more debt financing of private enterprises; H2: Folk financing and private enterprises to obtain bank loans is negative correlation--the higher the level of development of folkfinancing, the more debt financing of private enterprises, but the bank loans has decreased.Ⅲ.Data and Research MethodsA. Sample Selection and Data SourcesThis paper takes 2006-2011 years listed in Shanghai and Shenzhen Stock Exchange, private enterprises as the research sample.According to the following principles toeliminate some samples:(1)Excluding financial sector sample,because the liabilities of financial industry company is different from that of non-financial industry company;(2)Removing during 2006-2011, either by ST, PT treated company;(3)Excluding the lack of data and sample data extremely unusual; Finally, our sample consisted of 245 firms in 2006-2011, a total of 1345 observations.B. Model Set and Variable DefinitionIn order to test hypothesis 1, 2, we will be tested regression equation is set to:Debt=α+β1Mjrz+β2X+β3Industry+β4Year+εIn the equation, Debt is debt financingvariables, which means that the debt financingof enterprises, based on previous literature, the ariables involved in this article include:private enterprises debt financing and bank loan mount variables.[10]The specific measurement ethods are as follows:The total debt financing variablesFUZHIHJ) = the natural logarithm of total orporate debt financing;Bank loan amount variables (STRUCTURE)= Total loans / Total assetsMjrz indicates the degree of difficulty of rivate enterprises to obtain funds from the rea. Related indicators we use Wang Xiaolu's usiness Environment Index for China’s rovinces 2011Report.olk financing is aken from one of "Private Financing"Index, according to Wang Xiaolu definition,the greater the index, which means that ompanies are more likely to raise funds from he local private channels.X is a vector formed by a plurality of ontrol variables, we controlled for a number f factors that affect enterprise debt financing:Enterprise Scale(Size), Profitability(ROE),Growth(Growth), Mortgage Assets (Assetstruc),the Proportion of the First Shareholder (Shrcrl),Non-Debt Tax Shield (Ndts), Free Cash Flow(Fcf), Tobin's Q (TQ). We also consider the ndustry attributes (Industry) and annual (year)may affect the financing of corporate debt.Ⅳ.Empirical Results and nalysisThe empirical analysis of the order, first be rouped by key variables descriptive statistics,ndcompare the mean of each variable whether there are differences with the"Independent Sample t Test" between the twogroups; then by multivariate regression analysis to test folk financing for private corporate debt financing and bank loans have what kind of impact; finally grouping regression according to folk financing level whether the effect of folk financing for the private enterprises debt and bank loans differ in the level of group.A.Descriptive Statistics of VariablesWe put the sample in accordance with the development of high and low levels of folk financing into two groups (greater than the median of a group, less than or equal to the median of another group), and with the"Independent Sample t Test ", comparing the mean value of each variable in the two groups.The results are shown in Table 1, the results show that, the higher level of the folk financing development group total liabilities at the level of 5%,significantly higher than the low group;while total bank loans of a high level group at the 10% level, significantly lower. This suggests that higher levels of folk financing in the development of the region, the higher the total liabilities of private enterprises, but instead fewer total bank loans. The higher level group in Enterprise Scale (Size), Non-Debt Tax Shield(Ndts), Folk Finance Development Level (Mjrz)were significantly higher than the low level of development group; but the Company Growth(Growth), Mortgage Assets (Assetstruc), Free Cash Flow (Fcf) were significantly less than the low level group; the Profitability (Roe), TobinQ (TQ) and the Proportion of the First Shareholder (Shrcrl) there are no significant difference between the two groups. Descriptive results intuitively show the differences in each variable mean on the folk financing development level group of private enterprises,initially supported the hypothesis 1 and 2; To obtain reliable results, also need further multivariate regression analysis.B. Multiple Regression ResultsTable 2 by single variable analysis preliminary support hypothesis 1, 2, here we add control variables, further through regression analysis to test the influence of folk financing on private enterprises total liabilities and bank loans. Therefore, here we use Ordinary Least Squares (OLS) test, in order toavoid possible heteroscedasticity regression analysis in this paper, we using the White (1980)of the heteroskedasticity correction technique.The results shown in Table 2.Model (1), (2), (3)in table2 display folk financing and private enterprises total liabilities test results: In the model (1), we will put the whole folk financing in model, test results show that the folk inancing and total liabilities in a significant positive correlation at 1% level; In the model(2), we expressed a high level of development a group of folk financing into the model, the result is that the a higher level of development of folk financing to total liabilities under the 1% level was significant positive correlation;Similarly, we develop the folk financing group into a lower model (3), the result is a low level of development of folk financing is a positive correlation between total liabilities, but it does not have statistically significant. This shows the difficulty of folk financing of private enterprises have a significant impact on debt financing, the higher the level of development of folk financing, private enterprises is more easy to obtain funds from private, private enterprises debt more.Model (4), (5), (6), said the test results of folk financing and bank loans to private enterprises. In the model (4), we will put the whole folk financing in model, test results show that the folk financing with bank loans at the 5% level was significantly negatively correlated; In the model (5), we expressed a high level of development of a group of folk financing into the model, the result is a higher level of development of folk financing with the bank loans under the 5% level significantnegative correlation; Similarly, we develop the folk financing group into a lower model (6), the result is a low level of development of folk financing with bank loans is negative correlation but not significant. This means that,the higher the level of development of folk financing, private enterprises are more easily to receive money from the folk, thereby reducing the demand for bank loans.Model (1) to (6) confirms the alternative relationship between the folk financing and bank loans. Also shows that folk financing for the development of private enterprises has an important supporting role, high level of development of the folk area, private enterprises debt more, but the bank loan is less,which means, the private enterprises in the face of all kinds of "Discrimination" and “nstitutional Constraints”, private enterprises actively to use the folk financing to obtain economic resources.The above results show that, the folk financing by providing financing to the private enterprises, more funding to meet the needs of private enterprises, thus reducing the need for bank loans. It also confirms, the folk financing as a kind of social credit form, replacement effect of competing with the formal financial.Ⅴ.ConclusionsIn recent years, on the one hand, China's private enterprises, though it suffered a severe credit discrimination has been rapid development. On the other hand is the rapid growth of folk financing of our country, then folk financing and development of private enterprises has what kind of relationship?Using private enterprises listed in Shanghai and Shenzhen two city 2006-2011 years as samples, the empirical study found that: the folk financing difficulty has an important impact on the debt financing of private enterprises, In the higher level of development of folk financing, private enterprises is more easy to obtain funds from private, private enterprises debt financing is more; while the higher the level of development of folk financing, private enterprises debt more, but the bank loans decreased. This shows, folk financing by providing financing to the private enterprises, more to meet the financing needs of private enterprises, thus reducing the demand for bank loans.。