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Does Over-credit Stimulate Corporate Investment? Evidence from Listed Companies in China

Author

Listed:
  • Yuying Jin

    (R&D Administration, Shanghai University of Finance and Economics, Shanghai 200433, China)

  • Dong Zhao

    (School of International Business Administration, Shanghai University of Finance and Economics, Shanghai 200433, China)

Abstract

We define and quantify for the first time over-credit at the firm level, which refers to the case in which the amount of bank credit that a firm obtains exceeds its expenditure on corporate investment for the year. Then, we explore how over-credit affects corporate investment to determine whether credit expansion in China is consistent with the principle of finance serving the real economy. The results show that over-credit promotes firm investment, and this effect was enhanced by the housing boom. However, the effect of the property market reversed after 2012, owing to China¡¯s economic transition from a quantitative to a structural mismatch between supply and demand. Finally, we explore how over-credit affects the capacity utilization ratio and whether it has aggravated the overcapacity problem in China. The results show that over-credit reduces firms¡¯ capacity utilization ratio. This finding indicates that excessive credit expansion has exacerbated the overcapacity problem in China.

Suggested Citation

  • Yuying Jin & Dong Zhao, 2018. "Does Over-credit Stimulate Corporate Investment? Evidence from Listed Companies in China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 13(2), pages 281-311, June.
    • Handle: RePEc:fec:journl:v:13:y:2018:i:2:p:281-311
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-007-018-0016-5
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    Cited by:

    1. Lai, Xiaobing & Zhang, Fan, 2022. "Can ESG certification help company get out of over-indebtedness? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).

    More about this item

    Keywords

    over-credit; corporate investment; capacity utilization ratio;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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