Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240382 
Year of Publication: 
2021
Series/Report no.: 
BOFIT Discussion Papers No. 4/2021
Publisher: 
Bank of Finland, Bank of Finland Institute for Emerging Economies (BOFIT), Helsinki
Abstract: 
This paper investigates how government-led banking liberalization affects credit allocation by banks using as a quasi-natural experiment the establishment of city commercial banks (CCBs) in China. Based on more than three million corporate financial statements spanning over 16 years, we find that the establishment of CCBs led to a 6-14 % drop in debt funding for private firms, as well as a 1-2 % rise in their funding costs. At the same time, private infrastructure firms enjoyed a nearly 6 % increase in debt funding and more than 100-basis-point drop in interest costs despite their inferior credit quality. The debt financing of private firm appears most severely affected in municipalities where officials face high promotional pressures or fiscal constraints.
Subjects: 
banking liberalization
city commercial banks
bank lending
credit allocation
political economy in banking
JEL: 
D7
G21
G32
G38
P2
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-369-0
Document Type: 
Working Paper

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