Serving multiple ‘masters’: Evidence from the loan decisions of a publicly listed state-owned bank around a massive economic stimulus programme11The authors can be contacted via yuanhq@fudan.edu.cn, yiyuanz@hku.hk, hongzou@hku.hk, respectively. We are grateful for the comments of William Megginson (editor) and two anonymous reviewers that have helped improve the paper significantly. We also thank Francesco D'Acunto, Paul Goldsmith-Pinkham, Tse-Chun Lin, Ronald Masulis, Alberto Rossi, Mingzhu Tai, Yongxiang Wang, Cong Lin, Zhiguo He, Bohui Zhang, Feng Zhang, Haoxiang Zhu, Hongda Zhong, Laura Liu, Hao Wang, Guo Lin, Haoyu Gao, Hongxun Ruan, Zhuo Chen, Zeguang Li, and seminar participants at Nanjing University, University of Hong Kong, and conference participants at the 2019 China Financial Research Conference (Tsinghua), 2019 China International Conference in Finance, the 2019 China International Risk Forum, 2019 World Finance and Banking Symposium, and the 2019 Australasian Finance and Banking Conference for helpful comments. Yuan acknowledges the financial support of the National Natural Science Foundation of China (No. 71772044). Yuan and Zou thank the financial support of the University of Hong Kong-Fudan University IMBA Joint Research Fund 2015–16 (No. JRF1516_0504)

Using China's 2008 four-trillion-yuan economic stimulus as a setting and proprietary loan data, we study how a large publicly listed state-owned bank responds to the government's countercyclical financing initiative while trying to meet the expectations of bank regulators and public investors. We find that the bank exhibited little changes in the process of setting internal credit ratings of borrowers, and internal ratings remain a valid, albeit weaker, predictor of interest rates in the stimulus period. Interest rates also remain a valid predictor of loan delinquency in the stimulus period. Evidence from analyzing unlisted borrowers is broadly similar. Overall, there is no systematic evidence that loan decisions of the state-owned bank are severely compromised in the stimulus period. The study adds to the limited understanding of how partially privatized state-owned banks balance different objectives in managing credit risk and is relevant to the longstanding debate over the roles of state-owned banks.