Serving Multiple ‘Masters’: Evidence from the Loan Decisions of a State-Owned Publicly Listed Bank Around a Massive Economic Stimulus Programme

49 Pages Posted: 21 Sep 2020 Last revised: 20 Jan 2022

See all articles by Hongqi Yuan

Hongqi Yuan

Fudan University - School of Management

Zoey Yiyuan Zhou

The University of Hong Kong - Faculty of Business and Economics

Hong Zou

The University of Hong Kong - Faculty of Business and Economics

Date Written: August 16, 2020

Abstract

Using China’s 2008 four-trillion-yuan economic stimulus as a setting and proprietary loan data, we study how a large publicly listed state-owned bank responds to the government’s countercyclical financing initiative while trying to meet the expectations of bank regulators and public investors. We find that the bank exhibited little changes in the process of setting internal credit ratings of borrowers, and internal ratings remain a valid, albeit weaker, predictor of interest rates in the stimulus period. Interest rates also remain a valid predictor of loan delinquency in the stimulus period. Evidence from analyzing unlisted borrowers is broadly similar. Overall, there is no systematic evidence that loan decisions of the state-owned bank are severely compromised in the stimulus period. The study adds to the limited understanding of how partially privatized state-owned banks balance different objectives in managing credit risk and is relevant to the longstanding debate over the roles of state-owned banks.

Keywords: internal rating; loan; interest rate; state-owned banks; economic stimulus

JEL Classification: G24; G28

Suggested Citation

Yuan, Hongqi and Zhou, Yiyuan and Zou, Hong, Serving Multiple ‘Masters’: Evidence from the Loan Decisions of a State-Owned Publicly Listed Bank Around a Massive Economic Stimulus Programme (August 16, 2020). Journal of Corporate Finance, 2022, Available at SSRN: https://ssrn.com/abstract=3675052 or http://dx.doi.org/10.2139/ssrn.3675052

Hongqi Yuan

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

Yiyuan Zhou

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Hong Zou (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

China

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