Does political pressure matter in bank lending? Evidence from China

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Abstract

Using provincial data from China between 2002 and 2011, we find substantial evidence indicating a positive association between the growth of bank loans issued by commercial banks and the political pressures faced by provincial leaders. This association is particularly true for state-owned banks, which are much more politically pressurized than others, but is relatively attenuated in provinces with a more developed banking sector. We also find that bank loans issued under greater political pressures are less commercially oriented and have lower quality. Our findings are robust to a variety of sensitivity analyses and alternative measures of political pressure. Overall, our study contributes to a growing literature emphasizing the role of the political incentives of government officials in fuelling economic growth through credit allocation.

Bibliographical metadata

Original languageEnglish
Pages (from-to)249-277
JournalFinancial Markets, Institutions and Instruments
Volume26
Issue number5
Early online date9 Nov 2017
DOIs
Publication statusPublished - 9 Nov 2017

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