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Bank lending incentives and firm investment decisions in China

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  • Zheng, Ying
  • Zhu, Yuande

Abstract

This study investigates whether and how banks’ lending incentives influence firms’ investment behaviors in China. First, empirical results show that loans granted to politically connected firms are less influenced by those firms’ profitability and tangibility. Second, political connection is a violation factor in debt markets, and our study finds that firms with political ties invest less efficiently than firms without political ties when they can access abnormal debt. Finally, we find that regional development with regard to market development and government quality improvement reduces the negative impact of politically connected lending on firms’ investment efficiency.

Suggested Citation

  • Zheng, Ying & Zhu, Yuande, 2013. "Bank lending incentives and firm investment decisions in China," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 146-165.
    • Handle: RePEc:eee:mulfin:v:23:y:2013:i:3:p:146-165
    DOI: 10.1016/j.mulfin.2013.03.004
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    More about this item

    Keywords

    Bank lending incentive; Investment efficiency;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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