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Bank Loans with Chinese Characteristics: Some Evidence on Inside Debt in a State-Controlled Banking System


Warren Bailey


Cornell University

Wei Huang


University of Hawaii at Manoa - Shidler College of Business

Zhishu Yang


Tsinghua University - School of Economics & Management
January 16, 2012

Journal of Financial and Quantitative Analysis (JFQA), Vol 46, No. 6, 2011

Abstract:     
We study a transitional economy where state-controlled banks make loan decisions based on noisy inside information on prospective borrowers, and may lend to avert unemployment and social instability. In China, poor financial performance and high managerial expenses increase the likelihood of obtaining a bank loan, and bank loan approval predicts poor subsequent borrower performance. Negative event-study responses occur at bank loan announcements, particularly for borrowers measuring poorly on quality and creditworthiness, or for lenders or borrowers involved in litigation regarding loans. Our results highlight dilemmas in a state-led financial system and the local stock market’s sophistication in interpreting news.

Number of Pages in PDF File: 64

Keywords: bank loans, state ownership, China

JEL Classification: G21, G28, G14

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Date posted: September 19, 2008 ; Last revised: September 1, 2012

Suggested Citation

Bailey, Warren B., Huang, Wei and Yang, Zhishu, Bank Loans with Chinese Characteristics: Some Evidence on Inside Debt in a State-Controlled Banking System (January 16, 2012). Journal of Financial and Quantitative Analysis (JFQA), Vol 46, No. 6, 2011. Available at SSRN: http://ssrn.com/abstract=1269067

Contact Information

Warren B. Bailey (Contact Author)
Cornell University ( email )
Samuel CurtisJohnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://courses.cit.cornell.edu/wbb1/
Wei Huang
University of Hawaii at Manoa - Shidler College of Business ( email )
2404 Maile Way
Honolulu, HI 96822
United States
808-956-7679 (Phone)
808-956-9887 (Fax)
Zhishu Yang
Tsinghua University - School of Economics & Management ( email )
Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)
Feedback to SSRN (Beta)


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