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Do local banks alleviate ownership discrimination? Evidence from China

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  • Zeng, Ceng
  • Guo, Meng
  • Zhao, Xiaoyang

Abstract

Information asymmetry is more evident in the non-state-owned enterprises (non-SOEs), than in state-owned enterprises (SOEs), due to the lack of government endorsement. Therefore, it is more difficult for the non-SOEs to obtain credit, creating ownership discrimination in the credit market. Our study investigates the role of local banks in alleviating ownership discrimination. We find that non-SOEs receive more credit compared to SOEs after the establishment of city commercial banks (CCBs) in China, indicating that CCB establishment alleviates the discrimination. Further, CCBs demonstrate information advantage in obtaining and utilizing soft information. Additionally, enterprises that receive more loans after CCB establishment are associated with better operational performance and lower financing costs, rejecting the alternative explanation that these banks allocate more credits to the non-SOEs by charging higher interest rates. Our study provides evidence of the crucial function played by local banks in the banking system.

Suggested Citation

  • Zeng, Ceng & Guo, Meng & Zhao, Xiaoyang, 2025. "Do local banks alleviate ownership discrimination? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 997-1013.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:997-1013
    DOI: 10.1016/j.eap.2025.06.041
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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