Does Over-credit Stimulate Corporate Investment? Evidence from Listed Companies in China

Yuying Jin () and Dong Zhao ()
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Yuying Jin: R&D Administration, Shanghai University of Finance and Economics, Shanghai 200433, China
Dong Zhao: School of International Business Administration, Shanghai University of Finance and Economics, Shanghai 200433, China

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2018, vol. 13, issue 2, 281-311

Abstract: We define and quantify for the first time over-credit at the firm level, which refers to the case in which the amount of bank credit that a firm obtains exceeds its expenditure on corporate investment for the year. Then, we explore how over-credit affects corporate investment to determine whether credit expansion in China is consistent with the principle of finance serving the real economy. The results show that over-credit promotes firm investment, and this effect was enhanced by the housing boom. However, the effect of the property market reversed after 2012, owing to China¡¯s economic transition from a quantitative to a structural mismatch between supply and demand. Finally, we explore how over-credit affects the capacity utilization ratio and whether it has aggravated the overcapacity problem in China. The results show that over-credit reduces firms¡¯ capacity utilization ratio. This finding indicates that excessive credit expansion has exacerbated the overcapacity problem in China.

Keywords: over-credit; corporate investment; capacity utilization ratio (search for similar items in EconPapers)
JEL-codes: E52 G31 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:13:y:2018:i:2:p:281-311

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