The signaling effect of policy loans: Do commercial banks follow up or stand by?

Wei Fan, Qianwei Ying and Guo Meng

Finance Research Letters, 2023, vol. 56, issue C

Abstract: This study provides evidence that the signaling effect of policy loans can influence commercial banks' loan decisions in China. After obtaining policy loans, firms convey mixed signals to commercial banks. These signals include the certification signal (indicating that firms are of high quality) and the endorsement signal (showing that firms have an implicit guarantee from the government), thus alleviating the information asymmetry between commercial banks and firms. Our results indicate that commercial banks follow policy banks and respond to the signaling effect of policy loans by granting more loans and relaxing loan terms.

Keywords: Policy loan; Commercial loan; Signaling effect; Certification effect; Endorsement effect; Loan term (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:56:y:2023:i:c:s154461232300466x

DOI: 10.1016/j.frl.2023.104094

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