What Causes the Influence of Bank Channel towards Corporate Investment: Liquidity or Economic Policy Uncertainty?

Wentao Gu (), Wanting Qi (), Yutong Wang (), Lixiang Li () and Liyan Pan ()
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Wentao Gu: Institute of quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.
Wanting Qi: Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.
Yutong Wang: Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.
Lixiang Li: Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.
Liyan Pan: Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.

Journal for Economic Forecasting, 2024, issue 3, 81-101

Abstract: Given the bank-led financial system and unique financial environment in China, the majority of companies depend on external financing, particularly through bank credit, to acquire funds for investment activities. This paper investigates whether the influence on bank credit channels stems from liquidity, economic policy uncertainty, or both, through an empirical study involving a sample of 517 companies listed on the Shanghai and Shenzhen A-share main boards. The study reveals that corporate investment expenditures through bank credit channels are significantly inhibited by economic policy uncertainty. Simultaneously, corporate investment is affected differently by the bank liquidity crisis resulting from non-economic policy uncertainty, owing to various government actions. The empirical results obtained through the threshold panel models further demonstrate that the effects of uncertainty and liquidity on investment vary across different industries, ownership structures, and growth opportunities. Our findings contribute to the discourse on promoting corporate investment, bolstering bank liquidity, and enhancing economic policy stability in the intricate economic environment of emerging economies.

Keywords: economic policy uncertainty; liquidity; bank credit; corporate investment; threshold panel model (search for similar items in EconPapers)
JEL-codes: D80 E22 E60 G32 (search for similar items in EconPapers)
Date: 2024
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