Did China's Bank Ownership Reform Improve Credit Allocation?

54 Pages Posted: 24 Aug 2019 Last revised: 27 Sep 2021

See all articles by Weidi Yuan

Weidi Yuan

University of Geneva - Geneva School of Economics and Management

Difei Ouyang

University of International Business and Economics - School of International Business and Economics

Zhicheng Zhang

University of Geneva - Geneva Finance Research Institute

Date Written: May 26, 2021

Abstract

This paper studies the impact of ownership reform on the credit allocation of China's three largest state-owned banks (SOBs) in 2004. Using firm data for 2000-2007, we show that listed companies with higher amounts of debt experience a larger decline in credit access in cities that are more exposed to these SOBs after bank reform, indicating that a bank ownership change pushes loan officers to give much more importance to credit risks in the lending process. We extend our study to the universe of unlisted manufacturing companies and find that bank ownership reform also reduces bank lending to state-owned enterprises (SOEs) and low productivity firms in addition to more indebted firms. The negative effect of the reduced SOB lending on firm performance in terms of profitability and investment is only prominent in SOEs and firms with low productivity.

Keywords: Bank Ownership Reform, Credit Access, Firm Performance

JEL Classification: G21, G32, D22, R11

Suggested Citation

Yuan, Weidi and Ouyang, Difei and Zhang, Zhicheng, Did China's Bank Ownership Reform Improve Credit Allocation? (May 26, 2021). European Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3441338 or http://dx.doi.org/10.2139/ssrn.3441338

Weidi Yuan

University of Geneva - Geneva School of Economics and Management ( email )

Uni Mail
Bd du Pont-d'Arve 40
Geneva, 1211
Switzerland

Difei Ouyang (Contact Author)

University of International Business and Economics - School of International Business and Economics ( email )

Beijing
China

HOME PAGE: http://sites.google.com/site/ouyangdifei

Zhicheng Zhang

University of Geneva - Geneva Finance Research Institute ( email )

Geneva, Geneva
Switzerland

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