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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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    Cited by:

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    3. Kebede, Jeleta & Naranpanawa, Athula & Selvanathan, Saroja, 2023. "Financial inclusion and income inequality nexus: A case of Africa," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 539-557.
    4. Guangyu Huang & Fei Ye & Yina Li & Lujie Chen & Minhao Zhang, 2023. "Corporate social responsibility and bank credit loans: Exploring the moderating effect of the institutional environment in China," Asia Pacific Journal of Management, Springer, vol. 40(2), pages 707-742, June.
    5. Driffield, Nigel & Du, Jun & Song, Meng, 2021. "Internationalization pathways of Chinese private firms: A closer look at firm-specific advantages," Journal of International Management, Elsevier, vol. 27(3).
    6. Jebran, Khalil & Chen, Shihua, 2022. "Corporate policies and outcomes during the COVID-19 crisis: Does managerial ability matter?," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    7. Zhao Wang & Xiaobing Liu & Qinhua Liu, 2019. "Study of the Relationship between Political Connections and Corporate Re-Entrepreneurial Performance," Sustainability, MDPI, 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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