Inside the black box : bank credit allocation in China’s private sector
Journal of Banking and Finance
Bank loans, Lending decisions, Private sector, China
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.
Financial support from Lingnan University (DR07B2) and an earmarked grant from the HKSAR (CERG LU340307) are greatly acknowledged.
Copyright © 2009 Elsevier B.V
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Firth, M., Lin, C., Liu, P., & Wong, S. M. L. (2009). Inside the black box: Bank credit allocation in China’s private sector. Journal of Banking & Finance, 33(6), 1144-1155. doi: 10.1016/j.jbankfin.2008.12.008