Government Credit, a Double‐Edged Sword: Evidence from the China Development Bank

Government Credit, a Double‐Edged Sword: Evidence from the China Development Bank Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state‐owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Government Credit, a Double‐Edged Sword: Evidence from the China Development Bank

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© 2018 the American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/jofi.12585
Publisher site
See Article on Publisher Site

Abstract

Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state‐owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows.

Journal

The Journal of FinanceWiley

Published: Jan 1, 2018

References

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