Corporate investment, government control, and financing channels: Evidence from China's Listed Companies

Firth, Michael; Malatesta, Paul H.; Xin, Qingquan; Xu, Liping

doi:10.1016/j.jcorpfin.2012.01.004

Cited by 158 publications

(105 citation statements)

References 70 publications

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“…In this sense, firms in China are mostly bank-dependent and the borrowings of most firms are supported by bank loans (Firth et al, 2012). Therefore, we expect that the bank borrowing of Chinese firms is very sensitive to increased government direct lending through the state-owned banking system, following the implementation of the economic stimulus package.…”

Section: Economic Stimulus Package and Bank Loansmentioning

confidence: 99%

To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China

Liu

Pan

Tian

2018

Journal of Banking & Finance

119

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Using a panel of Chinese firms over the period 2003-2013, we show that, from the supply-side perspective, as a result of the implementation of the economic stimulus package in China, state-owned enterprises (SOEs) received more bank loans and invested more than non-SOEs. We further find that after the implementation of the economic stimulus package, bank lending became less responsive to firm profitability, and firm investments became less responsive to investment opportunities for SOEs, non-SOEs from favoured industries and regions, and non-SOEs with political connections. Overall, our findings support the view that the stimulus package and the associated increase in bank loan supply in China resulted in more resources being allocated to SOEs. in China, state-owned enterprises (SOEs) received more bank loans and invested more than non-SOEs. We further find that after the implementation of the economic stimulus package, bank lending became less responsive to firm profitability and firm investments became less responsive to investment opportunities for SOEs, non-SOEs from favoured industries and regions, and non-SOEs with political connections. Overall, our findings support the view that the stimulus package and the associated increase in bank loan supply in China resulted in more resources being allocated to SOEs.

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Section: Economic Stimulus Package and Bank Loansmentioning

confidence: 99%

To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China

Liu

Pan

Tian

2018

Journal of Banking & Finance

119

View full text Add to dashboard Cite

show abstract

“…China is identified as having an underdeveloped financial system and lacking a public bond market; banks are the main providers of capital, while bank credit is scarce (Cull and Xu, 2000;Firth et al, 2008). In addition, more than 90% of the banking assets in China are owned and controlled by the government, the financial system is dominated by government ownership, and most firm borrowings are supported by bank loans (Firth et al, 2012). Because of this government domination and the policy factors and homogeneity of state ownership, state-owned banks are more likely to grant credit to SOEs than to non-SOEs, following the objectives set by politicians and bureaucrats, to serve both political and economic goals .…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China

Pan

Tian

2015

Journal of Banking & Finance

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This study investigates the effect of banks' dual holding on bank lending and firms' investment decisions using a sample of listed firms in China. We find that dual holding leads to easier access to bank loans, a result that is more pronounced for non-state-owned enterprises (non-SOEs) than SOEs. We also find that dual holding distorts banks' lending decisions and harms the investment efficiency for SOEs, while resulting in optimal lending decisions and enhanced investment efficiency for non-SOEs. For non-SOEs, further analysis suggests that optimal lending decisions and efficient investment can be achieved for firms with higher ownership concentration, and firms in which the family and foreign investors are the controlling shareholders. We argue that, in emerging markets, whether a bank plays a monitoring role by directly holding the debt and equity claims of companies relies heavily on whether the potential collusion between firm executives and bank managers can be averted, which in turn is determined by the firms' governance framework and ownership structure. AbstractThis study investigates the effect of banks' dual holding on bank lending and firms' investment decisions using a sample of listed firms in China. We find that dual holding leads to easier access to bank loans, a result that is more pronounced for non-state-owned enterprises (non-SOEs) than SOEs. We also find that dual holding distorts banks' lending decisions and harms the investment efficiency for SOEs, while resulting in optimal lending decisions and enhanced investment efficiency for non-SOEs. For non-SOEs, further analysis suggests that optimal lending decisions and efficient investment can be achieved for firms with higher ownership concentration, and firms in which the family and foreign investors are the controlling shareholders. We argue that, in emerging markets, whether a bank plays a monitoring role by directly holding the debt and equity claims of companies relies heavily on whether the potential collusion between firm executives and bank managers can be averted, which in turn is determined by the firms' governance framework and ownership structure.

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“…The foundation of this study was based on Firth et al (2014) method. First, the information and data related to internal financing to external financing ratio and institutional investors were collected and next the data and information related to cash flows resulting from investment fluctuations in companies have been collected.…”

Section: Methodsmentioning

confidence: 99%

The Impact of Internal Financing and Institutional Investors Control on Cash Flows Resulting from Investment Fluctuations (Evidences from Tehran Stock Exchange)

Pahlavan¹,

Darabi²

2015

ASS

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The aim of the present research is to study the impact of financing within a company and institutional investors control on cash flows resulting from investment fluctuations in companies listed on Tehran Stock Exchange. To this end, historical data of 103 companies listed on Tehran Stock Exchange in the time period of 2007 -2012 were extracted and analyzed by using panel data. Results indicated that the more increase in cash flows, the more companies have interest for investment. In other words, investment fluctuations are sensitive to cash flows. Also, increased financing within a company reduces company's interest for investment of cash flows and vice versa. To this end, increased supervision of institutional investors increases company's interest for investment of cash flows and reduced supervision of institutional investors reduces company's interest for investment of cash flows. However, this effect was not statistically significant. Also, it was indicated that when there was an increase in activity volume of a company, on the basis of assets, there was an increase in company interest for investment of cash flows and a decrease in activity volume of a company, on the basis of assets, and the company interest for investment of cash flows. Also, increased cash dividends payment increases company interest for investment of cash flows and reduced cash dividends payment reduces company's interest for investment of cash flows. Age of the company and financial leverages did not have any effect on investment fluctuations sensitivity to cash flows. Keywords: internal financing within the company, institutional investor control, cash flows resulting from investment fluctuations

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Corporate investment, government control, and financing channels: Evidence from China's Listed Companies

Cited by 158 publications

References 70 publications

To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China

To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China

Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China

The Impact of Internal Financing and Institutional Investors Control on Cash Flows Resulting from Investment Fluctuations (Evidences from Tehran Stock Exchange)

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