Insider Lending and Economic Transition: The Structure, Function, and Performance Impact of Finance Companies in Chinese Business Groups

Lisa A. Keister

No 195, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: During the 1980s, China experienced dramatic real growth without the benefit of a well-developed financial system. China's experience during that decade provides an interesting contrast to evidence that real growth is strongly correlated with the development of an economy's formal financial system. Also during the 1980s, business groups were developing among Chinese firms. Many business groups, almost immediately after their formation, established finance companies, specialized firms that collected and redistributed funds within the group and also obtained funds through state banks on behalf of member firms. As such, the finance companies engaged in a type of "insider lending" that economic historians argue has aided firms in overcoming the challenges associated with poorly-developed formal financial markets in other developing economies. I examine the emergence, structure, and performance impact of insider lending arrangements in Chinese business groups using data on China's 40 largest business groups and their 535 member firms in 1988 and 1990. The analyses reveal that the presence and predominance of insider lending arrangements in the business groups positively affect the financial performance (profitability) and productivity (output per worker) of firms, particularly where markets have been slow to develop.

Pages: pages
Date: 1997-12-01
New Economics Papers: this item is included in nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp195.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp195.pdf [302 Found]--> https://wdi.umich.edu/files/Publications/WorkingPapers/wp195.pdf)

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:wdi:papers:1998-195

Access Statistics for this paper

More papers in William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109. Contact information at EDIRC.
Bibliographic data for series maintained by WDI ().