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Bank Finance for Private Firms in China: Does Political Capital Still Pay Off?

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  • Wenli Cheng
  • Yongzeng Wu

Abstract

This paper investigates whether political connections help private firms in China gain access to commercial bank loans. Based on data from the 2012 Nationwide Survey of Private Enterprises in China, it finds that (1) politically connected firms were more likely to have access to commercial bank loans; (2) political connections were more important for smaller private firms and for private firms in industries where state-owned enterprises had a stronger presence; (3) political connection was less important in provinces where private sector development was more advanced; and (4) loan allocation based on political connections did not appear to be inconsistent with commercial principles as politically connected firms were also more profitable.

Suggested Citation

  • Wenli Cheng & Yongzeng Wu, 2016. "Bank Finance for Private Firms in China: Does Political Capital Still Pay Off?," Monash Economics Working Papers 07-16, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2016-07
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    References listed on IDEAS

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    Cited by:

    1. Khaw, Karren Lee-Hwei & Zainudin, Rozaimah & Rashid, Rasidah Mohd, 2019. "Cost of debt financing: Does political connection matter?," Emerging Markets Review, Elsevier, vol. 41(C).
    2. Zhao Wang & Xiaobing Liu & Qinhua Liu, 2019. "Study of the Relationship between Political Connections and Corporate Re-Entrepreneurial Performance," Sustainability, MDPI, Open Access Journal, vol. 11(15), pages 1-28, July.

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    More about this item

    Keywords

    bank lending; private firms; political connection; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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