IDEAS home Printed from
   My bibliography  Save this paper

Insider Lending and Economic Transition: The Structure, Function, and Performance Impact of Finance Companies in Chinese Business Groups


  • Lisa A. Keister


During the 1980s, China experienced dramatic real growth without the benefit of a well-developed financial system. China's experience during that decade provides an interesting contrast to evidence that real growth is strongly correlated with the development of an economy's formal financial system. Also during the 1980s, business groups were developing among Chinese firms. Many business groups, almost immediately after their formation, established finance companies, specialized firms that collected and redistributed funds within the group and also obtained funds through state banks on behalf of member firms. As such, the finance companies engaged in a type of "insider lending" that economic historians argue has aided firms in overcoming the challenges associated with poorly-developed formal financial markets in other developing economies. I examine the emergence, structure, and performance impact of insider lending arrangements in Chinese business groups using data on China's 40 largest business groups and their 535 member firms in 1988 and 1990. The analyses reveal that the presence and predominance of insider lending arrangements in the business groups positively affect the financial performance (profitability) and productivity (output per worker) of firms, particularly where markets have been slow to develop.

Suggested Citation

  • Lisa A. Keister, 1997. "Insider Lending and Economic Transition: The Structure, Function, and Performance Impact of Finance Companies in Chinese Business Groups," William Davidson Institute Working Papers Series 195, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1998-195

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Jaideep Anand & Andrew Delios, 1997. "Location Specificity and the Transferability of Downstream Assets to Foreign Subsidiaries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 579-603, September.
    2. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    3. Beamish, Paul W. & Inkpen, Andrew C., 1998. "Japanese firms and the decline of the Japanese expatriate," Journal of World Business, Elsevier, vol. 33(1), pages 35-50.
    4. Harrison, Ann, 1994. "Multinationals in economic development: the benefits of FDI," MPRA Paper 36270, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1998-195. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WDI). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.