Bank Discrimination in Transition Economies: Ideology, Information or Incentives?
43 Pages Posted: 27 Mar 2003
Date Written: October 2002
We study bank discrimination against private firms in transition countries. Theoretically, we show that banks may discriminate for non-profit reasons, but this discrimination diminishes with a bank's incentives and human capital. Employing matching bank-firm data from China, we empirically examine the extent, sources and consequences of discrimination. Our unique survey design allows us to disentangle sample truncation, omitted variable bias, and endogeneity issues. Our empirical findings confirm the theoretical predictions. We also find that as a result of discrimination, private firms resort to more expensive trade credits.
Keywords: Bank discrimination, privatization, economic transition
JEL Classification: G14, G21 P26, P34
Suggested Citation: Suggested Citation