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Bank Credit Lines and Overinvestment: Evidence from China

Author

Listed:
  • Qianwei Ying
  • Danglun Luo
  • Lifan Wu

Abstract

The paper investigates the relationship between bank credit lines and firms’ overinvestment for Chinese listed companies from 2001 to 2008. We find significant impacts of bank credit lines on firm overinvestment activities. Further, we find that overinvestment is mainly made by State-owned firms, and not privately-owned firms. State-owned firms have easier access to bank credit lines with cheaper cost than private-owned firms, and therefore are more likely to overinvest. The results suggest that concentration of credit lines among State-owned firms likely leads to low resource allocation efficiency.

Suggested Citation

  • Qianwei Ying & Danglun Luo & Lifan Wu, 2013. "Bank Credit Lines and Overinvestment: Evidence from China," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(2), pages 43-52.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:2:p:43-52
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit Lines; Overinvestment; State-owned Firms;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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