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Bank discrimination in transition economies: ideology, information, or incentives?

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  • Brandt, Loren
  • Li, Hongbin

Abstract

We study bank discrimination against private firms in transition countries. Theoretically, we show that banks may discriminate for non-profit reasons, but this discrimination diminishes with a bank???s incentives and human capital. Employing matching bank-firm data from China, we empirically examine the extent, sources and consequences of discrimination. Our unique survey design allows us to disentangle sample truncation, omitted variable bias, and endogeneity issues. Our empirical findings confirm the theoretical predictions. We also find that as a result of discrimination, private firms resort to more expensive trade credits.
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Suggested Citation

  • Brandt, Loren & Li, Hongbin, 2003. "Bank discrimination in transition economies: ideology, information, or incentives?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 387-413, September.
  • Handle: RePEc:eee:jcecon:v:31:y:2003:i:3:p:387-413
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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