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Does investment in consumer finance companies impact credit allocation of banks? Evidence from China

Author

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  • Luo, Yan
  • Jiang, Chuyu
  • Jun, Xiao
  • Zhao, Yang

Abstract

Understanding how banks' strategic investments shape credit allocation is crucial for navigating financial market dynamics and promoting efficient resource distribution. This study investigates whether and how investments in consumer finance companies influence banks' credit allocation, using a multi-period difference-in-differences model and data from Chinese listed banks (2012–2022). The findings reveal that such investments significantly increase the allocation of personal and short-term loans, driven by reductions in loan interest rates, technological advancements, and intensified competition among banks. The effects are particularly pronounced for banks investing in consumer finance companies with IT enterprise backgrounds or lower shareholding ratios. Additionally, regional banks tend to expand unsecured loans, while national banks primarily increase the allocation of short-term and personal loans. This study highlights the critical role of investments in consumer finance companies and provides insights into the key factors shaping banks’ credit allocation strategies.

Suggested Citation

  • Luo, Yan & Jiang, Chuyu & Jun, Xiao & Zhao, Yang, 2025. "Does investment in consumer finance companies impact credit allocation of banks? Evidence from China," Economic Modelling, Elsevier, vol. 150(C).
    • Handle: RePEc:eee:ecmode:v:150:y:2025:i:c:s0264999325001282
    DOI: 10.1016/j.econmod.2025.107133
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    More about this item

    Keywords

    Consumer finance; Credit allocation; Commercial banks; Difference-in-Differences;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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