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Bank competition and labor share: evidence from China

Author

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  • Mingxue Xu
  • Minyuan He
  • Xiwen Tang

Abstract

Based on the latitude and longitude information of banks and firms, this study constructs firm-level bank competition indicators and investigates the impact of bank competition on labour share. Empirical findings indicate a significant negative impact on labour share due to heightened bank competition. The result remains stable under a series of robustness checks, such as adopting alternative measurements, instrument variable and so on. Heightened bank competition leads to reduced costs for firms’ external financing and an increase in the proportion of long-term liabilities, thereby enhancing capital profitability and diminishing the significance of labour. A significant drop in average wage per capita is the direct cause of the decline in labour share. Heterogeneous analysis reveals that the negative impact of bank competition on labour share is more pronounced for firms facing tighter financing constraints, larger investment needs, and greater exposure to bank competition.

Suggested Citation

  • Mingxue Xu & Minyuan He & Xiwen Tang, 2026. "Bank competition and labor share: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 58(12), pages 2289-2302, March.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:12:p:2289-2302
    DOI: 10.1080/00036846.2025.2475245
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