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Loan Extension in China: a Rational Affair


  • Piet van Gennip


Against the background of the problem of Non Performing Loans, the lack of data causes banking behaviour in China being wrapped in mystery. By making use of data reported by Shenzhenlisted firms, this paper reveals some stylized facts on loan extension in China. For that purpose both static and dynamic panel data estimation techniques are applied to investigate the relationship between a firm's debt position and some potential explanatory variables. In its approach, the paper differs from the corporate leverage literature in the sense that it focuses on bank behaviour. The results, as they come forward in the paper, provide mixed evidence regarding the soundness of loan extension policy of Chinese banks. On the one hand, banks seem to pursue a restrictive policy towards firms that face poor profit performance. On the other hand, factors that are generally considered as being important conditions on loan extension by banks do not have the effect ascribed to them by both intuition and the literature.

Suggested Citation

  • Piet van Gennip, 2005. "Loan Extension in China: a Rational Affair," DNB Working Papers 037, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:037

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    References listed on IDEAS

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    More about this item


    Loan extension by banks; Corporate finance; Panel data estimation;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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