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Bank liquidity hoarding and corporate investment: Evidence from Chinese listed firms

Author

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  • Ke, Konglin
  • Rui, Haohao

Abstract

This study examines whether and how bank liquidity hoarding in a bank-dominated financial system affects corporate investment. Using hand-collected loan-level data on bank credit extended to Chinese listed firms from 2007 to 2023, we document a robust negative relationship between bank liquidity hoarding and corporate investment. We provide evidence consistent with two transmission channels. Bank liquidity hoarding depresses corporate investment by tightening financing constraints and lowering managerial expectations. We further find that this adverse effect is mitigated by higher digital financial development, better corporate governance, and the implementation of local government debt reform. Additionally, bank liquidity hoarding reduces investment efficiency by exacerbating both underinvestment and overinvestment through credit rationing, and its adverse effect on corporate investment persists over time. Overall, this study provides firm-level evidence on the real effects of bank liquidity hoarding and yields policy implications for improving credit allocation and the transmission of financial conditions to the real economy.

Suggested Citation

  • Ke, Konglin & Rui, Haohao, 2026. "Bank liquidity hoarding and corporate investment: Evidence from Chinese listed firms," International Review of Economics & Finance, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:reveco:v:109:y:2026:i:c:s1059056026005381
    DOI: 10.1016/j.iref.2026.105425
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