SOEs and soft incentive constraints in state bank lending
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Date
2023-02-01
Authors
Fisman, Raymond
Wang, Yongxiang
Cao, Yiming
Lin, Hui
Version
Published version
OA Version
Citation
R. Fisman, Y. Wang, Y. Cao, H. Lin. 2023. "SOEs and Soft Incentive Constraints in State Bank Lending" American Economic Journal: Economic Policy, Volume 15, Issue 1, pp.174-195. https://doi.org/10.1257/pol.20200873
Abstract
We study how Chinese state bank managers’ lending incentives impact lending to state-owned enterprises (SOEs). We show lending quantity increases and quality decreases at month’s end, indicating monthly lending targets that decrease lending standards. Increased quantity comes from both SOEs and private lending, whereas decreased quality is from only SOEs, which continue to receive loans even after prior defaults (particularly at month’s end). We suggest that SOE lending may thus be beneficial for state bank managers, who lend to delinquent state enterprises to meet targets, which in turn may exacerbate SOEs’ soft budget constraints. (JEL G21, G28, L32, O16, P34).
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Copyright © 2023 by the American Economic Association