Credit Allocation under Economic Stimulus: Evidence from China

54 Pages Posted: 1 Nov 2016 Last revised: 12 Apr 2018

Lin William Cong

University of Chicago - Booth School of Business

Haoyu Gao

Central University of Finance and Economics (CUFE)

Jacopo Ponticelli

Kellogg School of Management - Department of Finance

Xiaoguang Yang

Chinese Academy of Sciences (CAS)

Multiple version iconThere are 2 versions of this paper

Date Written: March 27, 2018

Abstract

We study credit allocation across firms and its real effects during China's economic stimulus plan of 2009-2010. We match confidential loan-level data from the 19 largest Chinese banks with firm-level data on manufacturing firms. We find that the stimulus-driven credit expansion significantly affected firm borrowing, investment, and employment. It disproportionately favored state-owned firms and firms with lower marginal product of capital, reversing the process of capital reallocation towards private firms that characterized China high growth before 2008. We rationalize these findings in a dynamic model with heterogeneous firms and financial frictions.

Keywords: Misallocation, Reallocation, Banking, Growth, Firm Investment, Employment

JEL Classification: G30, O16, O23

Suggested Citation

Cong, Lin William and Gao, Haoyu and Ponticelli, Jacopo and Yang, Xiaoguang, Credit Allocation under Economic Stimulus: Evidence from China (March 27, 2018). Chicago Booth Research Paper No. 17-19. Available at SSRN: https://ssrn.com/abstract=2862101 or http://dx.doi.org/10.2139/ssrn.2862101

Lin Cong

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Haoyu Gao

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Jacopo Ponticelli (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

Xiaoguang Yang

Chinese Academy of Sciences (CAS) ( email )

52 Sanlihe Rd.
Datun Road, Anwai
Beijing, Xicheng District 100864
China

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