Does political pressure matter in bank lending? Evidence from China

Using provincial data from China between 2002 and 2011, we find substantial evidence indicating a positive association between the growth of bank loans issued by commercial banks and the political pressures faced by provincial leaders. This association is particularly true for state‐owned banks, which are much more politically pressurized than others, but is relatively attenuated in provinces with a more developed banking sector. We also find that bank loans issued under greater political pressures are less commercially oriented and have lower quality. Our findings are robust to a variety of sensitivity analyses and alternative measures of political pressure. Overall, our study contribute to a growing literature emphasizing the role of the political incentives of government officials in fuelling economic growth through credit allocation.     

银行竞争提高了企业投资水平和资源配置效率吗？——基于分支机构空间分布的研究

银行贷款是我国企业融资的重要方式,在企业生产经营中发挥着举足轻重的作用。2006年和2009年,我国先后两次放松了商业银行分支机构市场准入规制,银行分支机构空间分布发生了较大变化,银行竞争水平和服务实体经济能力明显提升。本文利用2001-2012年国家统计局工业企业数据,以企业周边银行分支机构的数量衡量银行竞争水平,研究银行竞争对企业投资的影响。研究发现,银行分支机构数量的增加显著提高了企业投资水平和投资效率。进一步研究表明,银行分支机构数量增加对企业投资效率的提升作用主要表现在投资不足的企业和非国有企业中,企业融资约束降低和代理冲突减弱是银行竞争提高企业投资效率的主要原因。本研究拓展了银行竞争以及企业投资和资源配置效率的相关文献,对供给侧结构性改革和银行业高质量发展具有启示意义。     

Who Borrows from the Lender of Last Resort?

We analyze lender of last resort (LOLR) lending during the European sovereign debt crisis. Using a novel data set on all central bank lending and collateral, we show that weakly capitalized banks took out more LOLR loans and used riskier collateral than strongly capitalized banks. We also find that weakly capitalized banks used LOLR loans to buy risky assets such as distressed sovereign debt. This resulted in a reallocation of risky assets from strongly to weakly capitalized banks. Our findings cannot be explained by classical LOLR theory. Rather, they point to risk taking by banks, both independently and with the encouragement of governments, and highlight the benefit of unifying LOLR lending and bank supervision.     

The effect of bank capital on lending: Does liquidity matter?

This paper uses a sample of quarterly observations of insured US commercial banks to examine whether the effect of bank capital on lending differs depending upon the level of bank liquidity. We find that the effect of an increase in bank capital on credit growth, defined as growth rate of net loans and unused commitments, is positively associated with the level of bank liquidity only for large banks and that this positive relationship has been more substantial during the recent financial crisis period. This result suggests that bank capital exerts a significantly positive effect on lending only after large banks retain sufficient liquid assets.     

Asset management and investment banking

We find evidence that conflicts of interest are pervasive in the asset management business owned by investment banks. Using data from 1990 to 2008, we compare the alphas of mutual funds, hedge funds, and institutional funds operated by investment banks and non-bank conglomerates. We find that, while no difference exists in performance by fund type, being owned by an investment bank reduces alphas by 46 basis points per year in our baseline model. Making lead loans increases alphas, but the dispersion of fees across portfolios decreases alphas. The economic loss is $4.9 billion per year.     

Deflation,bank credit growth,and non-performing loans: Evidence from Japan

In this paper, I examine the link between bank credit growth and non-performing loans in an economy with deflationary pressures. Using panel OLS regressions and two-step GMM regressions, I find evidence for the time-varying relationship between bank credit growth and non-performing loans in a sample of 82 publicly listed commercial banks in Japan during the period 1993–2013. I show that bank credit growth positively correlates with non-performing loans prior to the onset of the global financial crisis of 2007 but negatively correlates with non-performing loans afterwards. I find evidence to support the notion that large banks drive the observed effects of credit growth on non-performing loans. In addition, credit growth and non-performing loans have no effect on profitability. Overall, the findings suggest that while the increase in the supply of bank loans increases the level of non-performing loans, it does not lead to higher profitability.     

Bank ownership and executive perquisites: New evidence from an emerging market

Direct bank ownership is a common practice in emerging markets. The current paper studies how bank ownership affects firm performance through corporate executive perquisites (perks) in China, a leading emerging economy. In addition to common factors known to influence the level of executive perks, we find a significantly positive link between bank ownership of company shares and executive perquisites. Further analyses suggest that higher level of executive perquisites hurt firm operating efficiency. Specifically, perks are positively associated with interest rate paid by the firms. We find some evidence consistent with the notion that the conflict of interests that banks face as both lenders and shareholders in the emerging markets induces banks to play less effective monitoring if they are concerned with the security of their loans or aim to obtain better arrangement for their loans. Our results reveal a particular mechanism through which bank ownership influences firm decisions and performance.     

Capital ratios and bank lending: A matched bank approach

This paper examines the impact of bank capital ratios on bank lending by comparing differences in loan growth to differences in capital ratios at sets of banks that are matched based on geographic area as well as size and various business characteristics. We argue that such comparisons are most effective at controlling for local loan demand and other environmental factors. For comparison we also control for local factors using MSA fixed effects. We find, based on data from 2001 to 2011, that the relationship between capital ratios and bank lending was significant during and shortly following the recent financial crisis but not at other times. We find that the relationship between capital ratios and loan growth is stronger for banks where loans are contracting than where loans are expanding. We also show that the elasticity of bank lending with respect to capital ratios is higher when capital ratios are relatively low, suggesting that the effect of capital ratio on bank lending is nonlinear. In addition, we present findings on the relationship between bank capital and lending by bank size and loan type.     

Herding behaviour in the Australian loan market and its impact on bank loan quality

We examine the effect of herding behaviour on the credit quality of bank loans in Australia. We find that bank herding varies with different types of loans. It tends to be more prevalent in owner‐occupied housing loans and credit cards than other types of loans. During the global financial crisis period, herding in owner‐occupied housing loans was most pronounced due to the flight‐to‐quality phenomenon in the housing sector. Furthermore, we find that the big four banks tend to herd more than smaller and regional banks. Bank herding behaviour is countercyclical, as it is negatively related to real GDP growth and the cost of funding but is positively related to market risk. Regulatory capital requirements may also encourage herding as banks are required to hold less risk‐weighted capital for residential loans. Most importantly, bank herding is related to higher impaired assets and therefore lower loan quality. Our findings may have implications for policymakers and bank regulators.     

Panacea,Pandora's box,or placebo: Feedback in bank mortgage-backed security holdings and fair value accounting

We examine the relation between bank holdings of mortgage-backed securities (MBS) and MBS prices. Theory suggests feedback between MBS holdings and underlying asset markets can be aggravated by mark-to-market accounting. We measure feedback by the relation between asset returns and the changes in bank MBS holdings. Consistent with the existence of feedback effects related to mark-to-market, we find that for banks with high MBS, more nonperforming loans, and lower total capital ratio, changes in bank MBS positions are positively associated with changes in MBS prices and that this relation is reduced after the April 2009 mark-to-market rule clarification. To assess the effect of feedback on shareholder value, we test whether the stock-price response of banks to the announcement of the mark-to-market accounting rule clarification is associated with the intensity of feedback behavior. We find that the stock market reaction to the rule change is more positive for banks with more MBS, higher nonperforming loans and higher pre-rule-change feedback. We also find positive bond-price reactions to the rule change. Overall, our results suggest feedback related to mark-to-market accounting had a measurable effect on shareholder value.     

When arm's length is too far: Relationship banking over the credit cycle

We conduct face-to-face interviews with bank chief executive officers to classify 397 banks across 21 countries as relationship or transaction lenders. We then use the geographic coordinates of these banks’ branches and of 14,100 businesses to analyze how the lending techniques of banks near firms are related to credit constraints at two contrasting points of the credit cycle. We find that while relationship lending is not associated with credit constraints during a credit boom, it alleviates such constraints during a downturn. This positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn. Moreover, relationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans.     

Banks’ Governance and Innovation: Evidence from the Listed Firms in China

ABSTRACT

The article investigates the relationship between banks, agency costs, and innovation ability of listed firms. The role of banks in affecting innovation is a very important topic especially in China where banks play more important roles than equity markets. We find that banks providing short-term funds to listed non-high-tech firms dampen their innovation ability significantly. However, the relationship between short-term loans and innovation ability in high-tech firms is insignificant. The effects of short-term loans on innovation ability are significantly different between high-tech and non-high-tech firms. Further examination shows that high-tech firms with more short-term bank loans have significantly less abnormal management expenses than non-high-tech firms in the next year. The reduced abnormal management expenses in the next year significantly enhance the innovation ability in the year after next.     

The relationship between finance and growth in China

We examine the non-linearity between financial development and economic growth in China. Specifically, we use a threshold model to investigate whether provinces with high level of personal income can exploit financial development efficiently. Empirical analysis, using cross-provincial data from 1978 to 2010, shows that finance has a strong positive influence on growth in high-income provinces, but a strong negative impact on growth in low-income provinces. The results are robust to an alternative financial development measure. Furthermore, we find that China's state sector, notorious for inefficiency and low productivity, accounts for a large proportion of industrial output in low-income provinces, causing bank loans to have a negative impact on economic growth.     

Determinants of short-term debt: a note

Although various measures to lengthen the maturity of foreign debt are being discussed, there is relatively little evidence on the determinants of short-term debt. This paper briefly reviews the theoretical literature and discusses a stylized model which stresses the role of short-term debt under conditions of uncertainty. We then complement earlier empirical work by Rodrik and Velasco. Using a new dataset, we find that the determinants of short-term bank lending do not differ significantly between developed and developing countries. The level of economic development and the share of loans to banks are found to have a positive, OECD membership to have a negative impact on the share of short-term loans.     

非标意见与债务融资——基于银行借款和债务期限结构的经验证据

理论上,年报被出具非标意见会降低企业的债务融资能力。但本文发现非标意见对企业新增银行借款和债务期限结构没有显著负面影响,不支持理论预期。我们认为,在中国,银行是一个并非完全以利润最大化为目标的独立市场主体,他们会为了地方社会稳定和经济发展向企业提供贷款;另外,企业有政府的隐性支持,银行不需要太关注企业的偿债风险。因此,虽然非标意见传递出会计信息质量低或未来经营风险高等问题,但它对银行借款的影响相当有限。本文的研究有助于我们理解中国上市公司会计造假盛行、非标意见比例过高的现象。     

银行对企业经营的监督效应研究——基于控股股东掏空行为的视角

从控股股东掏空行为的视角,采用中国上市公司的贷款数据分析中国的商业银行对企业的监督作用。研究发现,银行对控股股东的掏空行为具有一定的监督作用,在银行贷款数量多、贷款期限长的公司中,控股股东的掏空行为明显减少。对不同所有制的企业,银行的监督作用存在异质性。目前,银行的监督作用主要体现在国有银行中,而国有银行能有效监督的对象仅限于地方政府和私人控制的企业,国有银行对中央企业的监督能力较弱。从事后监督来看,银行会对控股股东的掏空行为做出贷款政策的调整,对于控股股东掏空严重的企业,续新贷款的银行数量、续新贷款比例显著下降,而且贷款利率显著提高。     

BANKING RELATIONSHIPS AND THE EFFECT OF MONITORING ON LOAN PRICING

In a sample of bank loans to small firms we find a positive relation between the bank's monitoring effort and the loan's interest rate. We also observe an inverse relation between the closeness of banking relationships and interest rates. Further, we see that banks less frequently monitor firms with whom they have closer relationships. We conclude that banking relationships are valuable because firms can significantly reduce their costs of capital by establishing and maintaining close ties to a particular bank. As firms successfully complete loan transactions with banks, banks monitor them less frequently and, ultimately, charge them lower interest rates.     

Renegotiation and the pricing structure of sovereign bank loans: Empirical evidence

It is generally accepted that banks offer renegotiation services to sovereign borrowers facing short-term liquidity shortages. However, the literature has yet to find evidence of such services from the pricing of sovereign bank loans. The research on the pricing of sovereign bank loans has focused on interest spreads alone, while the pricing structure typically includes an up-front fee, as well. In this paper, I explore empirically the economic motivations for such a pricing structure. I find that up-front fees are explained by the probability of renegotiation and by proxies for informational problems. My findings provide evidence that the unique pricing structure of bank loans helps banks provide sovereign borrowers with renegotiation services.     

地方性银行产权结构、贷款供给与地方经济发展

从经济增长和经济效率两个维度衡量地方经济发展,在对地方性银行产权结构、贷款供给与地方经济发展关系进行理论分析的基础上,采用我国67家地方性银行的数据,实证研究在贷款供给促进地方经济发展方面,不同产权性质的地方性银行是否具有差异;并进一步分析城商行与农商行在促进城市和非城市经济发展方面的差异性。研究发现：地方性银行提供的贷款越多,地方经济增长速度越快,地方经济效率也越高。在贷款促进地方经济增长方面,国有与非国有控股银行的作用无明显差异,但在贷款促进地方经济效率提升方面,国有控股银行的作用弱于非国有控股银行。城商行和农商行的贷款均能有效促进市辖区的经济发展,且作用效果无明显差异,但它们均未能明显促进非市辖区的经济发展。     

Ability of accounting and audit quality variables to predict bank failure during the financial crisis

We examine the ability of selected accounting and audit quality variables measured in a period prior to the financial crisis (i.e., the four quarters of 2006), to predict banks that subsequently failed during the financial crisis. We employ two sets of samples from the US: a troubled banks sample that includes banks that failed in or after 2007 as well as banks classified as being troubled based on profitability, loan quality, and balance sheet position in 2007, and a full sample that includes all banks with available required data. Using the troubled banks sample, we identify six reliable predictors of bank failure: auditor type, auditor industry specialization, Tier 1 capital ratio, proportion of securitized loans, growth in loans, and loan mix. For the larger full sample of banks, we identify the following ten predictors of bank failure: auditor type, Tier 1 capital ratio, proportion of securitized loans, nonperforming loans, loan loss provisions, growth in commercial loans, growth in real estate loans, growth in overall loans, loan mix, and whether the bank is a public bank.