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

65 Pages Posted: 6 Mar 2015 Last revised: 26 Feb 2018

See all articles by Hong Ru

Hong Ru

Nanyang Business School, Nanyang Technological University

Date Written: August 25, 2017

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.

Keywords: Government Credit, Crowding out, China

JEL Classification: E51, G28, G31, G38

Suggested Citation

Ru, Hong, Government Credit, a Double-Edged Sword: Evidence from the China Development Bank (August 25, 2017). Journal of Finance 73.1, 275-316 , Available at SSRN: https://ssrn.com/abstract=2573865 or http://dx.doi.org/10.2139/ssrn.2573865

Hong Ru (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
(+65) 67904661 (Phone)

HOME PAGE: http://https://hongru.mit.edu/

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