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The effect of banking system reform on investment–cash flow sensitivity: Evidence from China |
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| Institution: | 5. Belt and Road Finance Institute, Central University of Finance and Economics, Beijing, China.;1. School of Labor and Human Resources, Renmin University of China, No. 59 Zhongguancun Street, Haidian District, Beijing 100872, China;2. Department of Economics, School of Business, Economics and Law, University of Gothenburg, Vasagatan 1, 405 30 Gothenburg, Sweden;1. World Bank, United States;2. Cheung Kong Graduate School of Business, China;3. Guanghua School of Management, Peking University, China |
| Abstract: | This study investigates the effect of banking system reform on the investment behavior of Chinese listed firms. We find that the politically-oriented investment problem for state-controlled listed companies is mitigated by the reform due to foreign participation in the management of Chinese banks. The problem of underinvestment in non-state-controlled listed companies also appears to be alleviated due to an increase of bank loans. We include leverage in our analysis and the main findings are robust. The results provide evidence that Chinese banking system reform has increased the efficiency of resource allocation, easing investment distortions in state-controlled listed companies and reducing financial constraints in non-state-controlled listed companies. |
| Keywords: | Banking system reform Investment–cash flow sensitivity Financial constraints China |
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