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Bank Financing in China's Private Sector: The Payoffs of Political Capital

  • Zhou, Wubiao
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    Summary In Reform Era China, bank financing plays a significant role in entrepreneurial development, despite a severe information asymmetry problem and a discriminatory legal/regulatory environment. This paper offers a political explanation for how Chinese entrepreneurs obtain bank loans by arguing that entrepreneurs actively invest in political capital to overcome bank financing obstacles. Pursuing membership in the legislative or semi-legislative organs of the Chinese government is an effective strategy for private entrepreneurs to obtain political capital. Empirical analysis suggests that a legislative membership helps entrepreneurs get access to bank loans; and it may be more useful for small and medium enterprises.

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    File URL: http://www.sciencedirect.com/science/article/B6VC6-4VDGTNW-2/2/51531a48747625aa9b7a21d09d5c59e2
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    Article provided by Elsevier in its journal World Development.

    Volume (Year): 37 (2009)
    Issue (Month): 4 (April)
    Pages: 787-799

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    Handle: RePEc:eee:wdevel:v:37:y:2009:i:4:p:787-799
    Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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    7. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-90, September.
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