Rise of Bank Competition: Evidence from Banking Deregulation in China

Haoyu Gao, Hong Ru, Robert Townsend and Xiaoguang Yang

No 25795, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using comprehensive loan-level data in China, we investigate how the deregulation on bank entry barriers alters local banking industrial organisation and its economic consequences. We document a novel trade-off: the potential benefits of deregulation are adversely mitigated by entrant banks’ preferences for lending to SOEs over more productive private firms. This credit misallocation accounts for 0.25% of GDP losses and is mainly due to SOEs’ soft budget constraints. Private firms need to provide more guarantees and higher ratings to borrow from entrant banks but enjoy lower interest rates. Access to these loans increases private firms’ investment, employment, profit, and ROA.

JEL-codes: G21 G28 L50 O40 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-ban, nep-cna, nep-fdg and nep-tra
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

Downloads: (external link)
http://www.nber.org/papers/w25795.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:25795

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25795

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().