Bank lending incentives and firm investment decisions in China

Ying Zheng and Yuande Zhu

Journal of Multinational Financial Management, 2013, vol. 23, issue 3, 146-165

Abstract: This study investigates whether and how banks’ lending incentives influence firms’ investment behaviors in China. First, empirical results show that loans granted to politically connected firms are less influenced by those firms’ profitability and tangibility. Second, political connection is a violation factor in debt markets, and our study finds that firms with political ties invest less efficiently than firms without political ties when they can access abnormal debt. Finally, we find that regional development with regard to market development and government quality improvement reduces the negative impact of politically connected lending on firms’ investment efficiency.

Keywords: Bank lending incentive; Investment efficiency (search for similar items in EconPapers)
JEL-codes: G21 G31 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:23:y:2013:i:3:p:146-165

DOI: 10.1016/j.mulfin.2013.03.004

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