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Compensating balance and loan bargaining power in China

Author

Listed:
  • Long Wu
  • Jing Zhang
  • Lei Xu

Abstract

Chinese firms simultaneously have high levels of loans and cash holdings. Through listed firms on the Shanghai and Shenzhen Stock Exchanges, we establish a negative link between cash holdings and a firm's loan bargaining power, especially in regions with less bank competition, through a firm's passive response to bank requests rather than its voluntary excess cash reserves. Furthermore, state ownership, collateral, economic contribution, and reduced information asymmetry may effectively strengthen firm bargaining power and moderate the link. However, better marketisation strengthens the link. The banking sector may need to improve its efficiency through better credit rationing in future reforms.

Suggested Citation

  • Long Wu & Jing Zhang & Lei Xu, 2024. "Compensating balance and loan bargaining power in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(2), pages 1335-1359, June.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:2:p:1335-1359
    DOI: 10.1111/acfi.13181
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