Does Political Pressure Matter in Bank Lending? Evidence from China

29 Pages Posted: 10 Nov 2017

See all articles by Weixing Cai

Weixing Cai

University of Science and Technology Beijing

Fangming Xu

University of Bristol

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Date Written: December 2017

Abstract

Using provincial data from China between 2002 and 2011, we find substantial evidence indicating a positive association between the growth of bank loans issued by commercial banks and the political pressures faced by provincial leaders. This association is particularly true for state‐owned banks, which are much more politically pressurized than others, but is relatively attenuated in provinces with a more developed banking sector. We also find that bank loans issued under greater political pressures are less commercially oriented and have lower quality. Our findings are robust to a variety of sensitivity analyses and alternative measures of political pressure. Overall, our study contribute to a growing literature emphasizing the role of the political incentives of government officials in fuelling economic growth through credit allocation.

Keywords: bank lending, China, loan quality, political pressure

Suggested Citation

Cai, Weixing and Xu, Fangming and Zeng, Cheng, Does Political Pressure Matter in Bank Lending? Evidence from China (December 2017). Financial Markets, Institutions & Instruments, Vol. 26, Issue 5, pp. 249-277, 2017, Available at SSRN: https://ssrn.com/abstract=3068412 or http://dx.doi.org/10.1111/fmii.12089

Weixing Cai (Contact Author)

University of Science and Technology Beijing ( email )

30 Xueyuan Road, Haidian District
beijing, 100083
China

Fangming Xu

University of Bristol ( email )

School of Accounting and Finance
Marie Dutordoir
Bristol, BS8 1PQ
United Kingdom
+44(0)1173941503 (Phone)

HOME PAGE: http://https://research-information.bris.ac.uk/en/persons/fangming-xu

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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