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Greasing the wheels of bank lending: Evidence from private firms in China

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  • Chen, Yunling
  • Liu, Ming
  • Su, Jun

Abstract

Bribery, rather than firm performance, largely determines the extent to which private firms access bank credit in China. Bribery enables an economic outcome whereby firms with better economic performance are awarded larger loans. These firms also pay more in terms of bribes. Although satisfactory firm performance does determine whether firms can access loans, it does so only for loans originated by the big-four banks. For loans originated by smaller banks, performance is not essential for firms to secure loan access. Our evidence sheds light on the surprising finding of earlier studies that Chinese banks use commercial logic in their lending practices despite being endowed with a weak institutional framework.

Suggested Citation

  • Chen, Yunling & Liu, Ming & Su, Jun, 2013. "Greasing the wheels of bank lending: Evidence from private firms in China," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2533-2545.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:7:p:2533-2545
    DOI: 10.1016/j.jbankfin.2013.02.002
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    More about this item

    Keywords

    Corruption; Bank lending; Alternative governance mechanisms;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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