Inside the Black Box: Bank Credit Allocation in China’s Private Sector

By Michael Firth, Chen Lin, Ping Liu, Sonia M. L. Wong. 2009

519 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/1f5fb5e02e17d83c1befb12ae6c41c81f9fac243

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Gary Gang Tian
2. Qigui Liu
3. Xiaofei Pan
4. Wenxuan Hou
5. A. Guariglia
6. John Knight
7. Sai Ding
8. Tianpei Luo

In Finance

1. Gary Gang Tian
2. Qigui Liu
3. Xiaofei Pan
4. A. Guariglia
5. John Knight
6. Sai Ding
7. Wenxuan Hou
8. Tianpei Luo

In Strategy and Management

1. John Knight
2. Sai Ding
3. Gary Gang Tian
4. Xiaofei Pan
5. Qigui Liu
6. Tianpei Luo
7. Kai Li
8. Michael Firth

Citations in the corpus

• Family control and corporate cash holdings: Evidence from China (2015, background): “Literature shows that Chinese family firms are discriminated against for accessing external financial resources (Cull and Xu, 2003; Firth et al., 2009; Li et al., 2009; Liu et al., 2013), so connected executives help to overcome this discrimination.”
• To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China (2018, methodology): “Consistent with the literature (Firth et al., 2009; Zheng and Zhu, 2013), we also include several control variables in equation (1).”
• Ownership Structure and Risk-Taking: Comparative Evidence from Private and State-Controlled Banks in China (2014, background): “1 Firth et al. (2009) find evidence that political connections play a role in the accessing of bank finance in China.”
• Investment and Financing Constraints in China: Does Working Capital Management Make a Difference? (2013, background): “…financial incentives owing to policies aimed at developing those regions (Goodman, 2004) whereas coastal areas may benefit from a more developed banking sector and the more widespread presence of foreign banks, which could make financing constraints less binding (Firth et al., 2009; Lin, 2010).”