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
Date Written: 2013
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: Suggested Citation