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Credit card cash‐out as informal financing: Evidence from China

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  • Yihong Ma
  • Yi Xue
  • Jiefei Yang

Abstract

Using a proprietary account‐level database from a commercial bank in China, we document that credit card holders can ease their credit constraints through the practice of cash‐out based on bogus transactions using credit cards. We find that such behaviour might be beneficial to both cardholders and banks. First, we find that a 1% increase in the cumulative number of credit card cash‐out transactions lowers the probability of default by 9.59%. Second, for private businesses, a 1% increase in the number of abnormal cash‐out transactions lowers overdue risk by 13.45%. Third, by lowering the overdue risk, the card‐issuing bank earns a larger profit. Our results are consistent with the notion that unconventional credit card cash‐out can mitigate the extent of capital misallocation in emerging markets.

Suggested Citation

  • Yihong Ma & Yi Xue & Jiefei Yang, 2019. "Credit card cash‐out as informal financing: Evidence from China," Australian Economic Papers, Wiley Blackwell, vol. 58(3), pages 259-279, September.
    • Handle: RePEc:bla:ausecp:v:58:y:2019:i:3:p:259-279
    DOI: 10.1111/1467-8454.12153
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    Cited by:

    1. Lai, Shaojie & Chen, Lihan & Wang, Qing Sophie & Anderson, Hamish, 2022. "Natural disasters, trade credit, and firm performance," Economic Modelling, Elsevier, vol. 116(C).
    2. Xu, Nana & Yuan, Yan & Rong, Zhao, 2022. "Depressed access to formal finance and the use of credit card debt in Chinese SMEs," China Economic Review, Elsevier, vol. 72(C).

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