Bank Loan Supply and Corporate Capital Structure: Recent Evidence from China

47 Pages Posted: 11 Jan 2015 Last revised: 2 May 2015

See all articles by Jianfu Shen

Jianfu Shen

Hang Seng Management College

Michael Firth

Lingnan University - Department of Finance and Insurance

Winnie P.H. Poon

Lingnan University, Hong Kong

Date Written: May 1, 2015

Abstract

This paper provides new evidence on the supply side effects on corporate capital structure in China. We find that bank-dependent firms, which are mainly large and state-owned companies in China, increase (decrease) their leverage ratios if loan supplies increase (decrease) relative to the case for small and private firms due to the inability of small and private firms to access bank loans. With their ability to substitute between different forms of capital, large and state-owned firms are relatively less (more) likely to use internal funds and equity financing when bank loans are (not) available than are small and private firms. During the credit boom in 2009 and 2010, the large and state-owned firms increase leverage ratios by 2.26% and 2.76% more than matched firms; and small and private firms are shown to decrease leverage in this period. These findings lend support to the importance of supply side effects and bank loan segmentation on capital structure decisions.

Keywords: Bank loan supply, access to bank loans, corporate leverage, financing choice, loan financing

JEL Classification: G21, G32, G38

Suggested Citation

Shen, Jianfu and Firth, Michael and Poon, Winnie P.H., Bank Loan Supply and Corporate Capital Structure: Recent Evidence from China (May 1, 2015). Available at SSRN: https://ssrn.com/abstract=2547860 or http://dx.doi.org/10.2139/ssrn.2547860

Jianfu Shen (Contact Author)

Hang Seng Management College ( email )

Department of Economics & Finance
Hang Shin Link, Siu Lek Yuen, Shatin
Hong Kong
Hong Kong

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Winnie P.H. Poon

Lingnan University, Hong Kong ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
852 2616 8179 (Phone)
852 2616 5326 (Fax)

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