Inside the black box: Bank credit allocation in China’s private sector |
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Authors: | Michael Firth Chen Lin Ping Liu Sonia ML Wong |
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Institution: | 1. Department of Finance and Insurance, Lingnan University, Castle Peak Road, Tuen Mun, Hong Kong;2. Department of Economics and Finance, City University of Hong Kong, Hong Kong |
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Abstract: | This study examines how the Chinese state-owned banks allocate loans to private firms. We find that the banks extend loans to financially healthier and better-governed firms, which implies that the banks use commercial judgments in this segment of the market. We also find that having the state as a minority owner helps firms obtain bank loans and this suggests that political connections play a role in gaining access to bank finance. In addition, we find that commercial judgments are important determinants of the lending decisions for manufacturing firms, large firms, and firms located in regions with a more developed banking sector; political connections are important for firms in service industries, large firms, and firms located in areas with a less developed banking sector. |
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Keywords: | G20 G21 G30 |
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