Do credit squeezes influence firm survival? An empirical investigation of China

Dongyang Zhang

Economic Systems, 2020, vol. 44, issue 3

Abstract: This paper analyses the effect of a “credit squeeze” policy that was set by the Chinese government in 2007, increasing the strictness for firm-level bank loans. We adopt the difference-in-difference (DID) model to compare the survival rate change before and after the policy was implemented. We further explore the mechanism behind how the “credit squeeze” policy reduced the probability of firms surviving the market from perspectives such as financial constraints and ownership structures. The “credit squeeze” policy significantly increased firms’ operating costs and lowered firms’ productivity. In addition, we find that the zombie firm phenomenon existing in state-owned enterprises has a large impact on our estimation. Our results provide practical policy implications regarding the compromise between systematic debt risk and firm survival.

Keywords: Credit squeeze; Firm survival; Ownership structure; Difference-in-difference policy implications (search for similar items in EconPapers)
JEL-codes: C54 G38 P21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:3:s0939362518304588

DOI: 10.1016/j.ecosys.2020.100790

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