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Bank discrimination, holding bank ownership, and economic consequences: Evidence from China

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  • Lu, Zhengfei
  • Zhu, Jigao
  • Zhang, Weining
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    Abstract

    This paper finds that compared with Chinese state-owned firms, non-state-owned firms have a greater propensity to hold significant ownership in commercial banks. These results are consistent with the notion that because non-state-owned firms are more likely to suffer bank discrimination for political reasons, they tend to address their financing disadvantages by building economic bonds with banks. We also find that among non-state-owned firms, those that hold significant bank ownership have lower interest expenses, and are less likely to increase cash holdings but more likely to obtain short-term loans when the government monetary policy is tight. These results suggest that the firms building economic bonds with banks can enjoy benefits such as lower financial expenses and better lending terms during difficult times. Finally, we find that non-state-owned firms with significant bank ownership have better operating performance. Overall, we find that firms can reduce discrimination through holding bank ownership.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 2 ()
    Pages: 341-354

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:2:p:341-354

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Bank discrimination; Holding bank ownership; State-owned firms; Political connections; Bank loan;

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    References

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    Cited by:
    1. Schlüter, Tobias & Sievers, Sönke & Hartmann-Wendels, Thomas, 2012. "How can banks effectively stabilize their retail customers saving behavior? The impact of contractual rewards on saving persistence and cash flow volatility," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62057, Verein für Socialpolitik / German Economic Association.
    2. Chen, Pei-Fen & Liu, Ping-Chin, 2013. "Bank ownership, performance, and the politics: Evidence from Taiwan," Economic Modelling, Elsevier, vol. 31(C), pages 578-585.
    3. Jiang, Zhan & Kim, Kenneth A., 2013. "Financial management in China," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 125-133.

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