Policy Sentiment and Bank’s Lending Behavior: Evidence from China’s Photovoltaic Industry

The Chinese photovoltaic (PV) industry has experienced rapid growth due to the supportive industrial policies put in place by the Chinese government. However, the industry has been plagued by excess capacity for a long period of time. PV manufacturers’ capacity expansion has heavily relied on the support of bank credit. Despite the industry’s excess capacity, banks continue to exhibit a willingness to provide additional loans to the manufacturers. This is primarily attributed to a series of favorable industrial policies which communicate vital information to banks and other market stakeholders, subsequently influencing their behaviors. This paper constructs a utility model for bank lending and studies the credit relationship between banks and PV companies. In addition, policy sentiment implied in the PV policy is quantified through sentiment analysis and incorporated into the utility model to explore the impact of policy signals on banks’ lending behavior. According to the results of the empirical study utilizing panel data analysis, policy sentiment has a significantly positive impact on PV companies’ debt levels as it can change banks’ preferences on their lending targets and affect their risk assessment of the PV industry, benefiting numerous industry players who have expanded their business with the support of bank credit.