Political uncertainty, bank loans, and corporate behavior: New investigation with machine learning

Yilei Qian, Feng Wang, Muyang Zhang and Ninghua Zhong

Pacific-Basin Finance Journal, 2024, vol. 87, issue C

Abstract: This paper investigates how uncertain term length, a novel source of political uncertainty, affects the behaviors of banks and firms using a machine-learning approach. China's local authorities do not have a fixed term, creating an ideal environment for studying how economic agents react to their perception of political uncertainty without an actual political turnover. We implement a machine-learning method to predict the term length of city leaders by observing others with similar backgrounds. Combining this new measurement of political uncertainty and bank- and firm-level data, we find an inverted U-shaped relationship between city leaders' predicted remaining term length and bank loans, corporate liabilities, and investment, which matches the change of political uncertainty over the term. We also record the potential adverse consequences of the politically motivated loan and investment expansion, such as a loss of corporate efficiency and a disruption in market order.

Keywords: Political uncertainty; Uncertain term length; Bank loans; Corporate investment; Machine learning (search for similar items in EconPapers)
JEL-codes: D81 E32 G21 G31 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X24002324
Full text for ScienceDirect subscribers only

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:eee:pacfin:v:87:y:2024:i:c:s0927538x24002324

DOI: 10.1016/j.pacfin.2024.102480

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().