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SOEs and Soft Incentive Constraints in State Bank Lending

Author

Listed:
  • Yiming Cao
  • Raymond Fisman
  • Hui Lin
  • Yongxiang Wang

Abstract

We study how Chinese state bank managers' lending incentives impact lending to state-owned enterprises (SOEs). We show lending quantity increases and quality decreases at month's end, indicating monthly lending targets that decrease lending standards. Increased quantity comes from both SOEs and private lending, whereas decreased quality is from only SOEs, which continue to receive loans even after prior defaults (particularly at month's end). We suggest that SOE lending may thus be beneficial for state bank managers, who lend to delinquent state enterprises to meet targets, which in turn may exacerbate SOEs' soft budget constraints.

Suggested Citation

  • Yiming Cao & Raymond Fisman & Hui Lin & Yongxiang Wang, 2023. "SOEs and Soft Incentive Constraints in State Bank Lending," American Economic Journal: Economic Policy, American Economic Association, vol. 15(1), pages 174-195, February.
    • Handle: RePEc:aea:aejpol:v:15:y:2023:i:1:p:174-95
    DOI: 10.1257/pol.20200873
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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