City Commercial Banks and Credit Allocation: Firm-Level Evidence

42 Pages Posted: 10 Mar 2021 Last revised: 18 Nov 2021

See all articles by Shulong Kang

Shulong Kang

Dongbei University of Finance and Economics

Jianfeng Dong

Tongji University - Clinical and Translational Research Center

Haiyue Yu

Dongbei University of Finance and Economics

Jin Cao

Norges Bank - Research Department; Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute)

Valeriya Dinger

Universität Osnabrück

Date Written: March 9, 2021

Abstract

This paper investigates how government-led banking liberalization affects credit allocation by banks using as a quasi-natural experiment the establishment of city commercial banks (CCBs) in China. Based on more than three million corporate financial statements spanning over 16 years, we find that the establishment of CCBs led to a 6–14 % drop in debt funding for private firms, as well as a 1–2 % rise in their funding costs. At the same time, private infrastructure firms enjoyed a nearly 6 % increase in debt funding and more than 100-basis-point drop in interest costs despite their inferior credit quality. The debt financing of private firm appears most severely affected in municipalities where officials face high promotional pressures or fiscal constraints.

JEL Classification: D7, G21, G32, G38, P2

Suggested Citation

Kang, Shulong and Dong, Jianfeng and Yu, Haiyue and Cao, Jin and Dinger, Valeriya, City Commercial Banks and Credit Allocation: Firm-Level Evidence (March 9, 2021). BOFIT Discussion Paper No. 4/2021, Available at SSRN: https://ssrn.com/abstract=3801460 or http://dx.doi.org/10.2139/ssrn.3801460

Shulong Kang (Contact Author)

Dongbei University of Finance and Economics ( email )

China

Jianfeng Dong

Tongji University - Clinical and Translational Research Center

Shanghai, 201204
China

Haiyue Yu

Dongbei University of Finance and Economics ( email )

China

Jin Cao

Norges Bank - Research Department ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Ludwig Maximilian University of Munich (LMU) ( email )

Bankplassen 2, PB 1179 Sentrum
Oslo, NO-0107
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Valeriya Dinger

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074
Germany

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