Bank Credit Lines and Overinvestment: Evidence from China

The International Journal of Business and Finance Research, v. 7 (2) p. 43-52

10 Pages Posted: 29 Jan 2013

See all articles by Qianwei Ying

Qianwei Ying

Sichuan University

Luo Danglun

Sun Yat-Sen University (SYSU)

Lifan Wu

California State University, Los Angeles - Department of Finance and Law

Date Written: 2013

Abstract

The paper investigates the relationship between bank credit lines and firms’ overinvestment for Chinese listed companies from 2001 to 2008. We find significant impacts of bank credit lines on firm overinvestment activities. Further, we find that overinvestment is mainly made by State-owned firms, and not privately-owned firms. State-owned firms have easier access to bank credit lines with cheaper cost than private-owned firms, and therefore are more likely to overinvest. The results suggest that concentration of credit lines among State-owned firms likely leads to low resource allocation efficiency.

Keywords: Credit lines, Overinvestment, State-owned firms

JEL Classification: G21, G31, G38

Suggested Citation

Ying, Qianwei and Danglun, Luo and Wu, Lifan, Bank Credit Lines and Overinvestment: Evidence from China (2013). The International Journal of Business and Finance Research, v. 7 (2) p. 43-52. Available at SSRN: https://ssrn.com/abstract=2149113

Qianwei Ying (Contact Author)

Sichuan University ( email )

Chengdu, Sichuan 610064
China

Luo Danglun

Sun Yat-Sen University (SYSU) ( email )

135, Xingang Xi Road
Guangzhou, Guang Dong 510275
China

Lifan Wu

California State University, Los Angeles - Department of Finance and Law ( email )

5151 State University Dr
Los Angeles, CA 90032
United States
213-343-2870 (Phone)

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