SOEs and Soft Incentive Constraints in State Bank Lending

Yiming Cao, Raymond Fisman, Hui Lin and Yongxiang Wang

American Economic Journal: Economic Policy, 2023, vol. 15, issue 1, 174-95

Abstract: We study how Chinese state bank managers' lending incentives impact lending to state-owned enterprises (SOEs). We show lending quantity increases and quality decreases at month's end, indicating monthly lending targets that decrease lending standards. Increased quantity comes from both SOEs and private lending, whereas decreased quality is from only SOEs, which continue to receive loans even after prior defaults (particularly at month's end). We suggest that SOE lending may thus be beneficial for state bank managers, who lend to delinquent state enterprises to meet targets, which in turn may exacerbate SOEs' soft budget constraints.

JEL-codes: G21 G28 L32 O16 P34 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1257/pol.20200873

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