Abstract: Based on the agency conflicts between actual controllers and investors, this paper investigates the reputation mechanism that functions as an alleviator of the financial constraints of private firms. By exploring a sample of private companies listed on SME Board with natural persons as actual controllers between 2009 and 2017, we examine whether and how the reputation of actual controllers alleviates the financial constraints of private SMEs. Empirical results show that the increase in the market reputation of actual controllers significantly reduces the financial constraints of private SMEs, and this reputation mechanism is realized by reducing the agency costs between actual controllers and investors through the ability signaling effect and the behavior restraint effect. Moreover, the impact of reputation of actual controllers on firms' financial constraints is greater for firms operating in areas with lower level of investor protection. With limited investor protection, reputation can serve as a substitute for internal governance to improve the efficiency of corporate governance and contribute to the alleviation of financial constraints of private firms. This paper extends the literature on the determinants of financial constraints of private enterprises and provides new evidence for solving the financing problems of private SMEs from the perspective of external corporate governance in a non-institutional environment.

Key words: financial constraints, reputation, actual controllers, private SMEs