Bank Competition and Industrial Structure: Evidence from China

Posted: 26 Nov 2018 Last revised: 25 Mar 2019

See all articles by Di Gong

Di Gong

University of International Business and Economics (UIBE) - School of Banking and Finance

Liping Lu

VU University Amsterdam - Department of Finance and Financial Sector Management

Weixing Wu

University of International Business and Economics (UIBE)

Fan Zhou

University of International Business and Economics (UIBE)

Date Written: October 31, 2018

Abstract

We examine the impact of bank competition on the industrial structure using a city-industry level dataset during 2005-2009 in China. We find that bank competition increases the number of firms per capita and decreases average firm size in industries with higher external financial dependence. Bank competition affects industrial structure through increasing the proportion of SMEs. The impact of bank competition is more pronounced for private firms, and joint stock banks are the most efficient players in enhancing industrial structure. We instrument bank competition with average bank competition of other cities in the same province, and also employ the deregulation of bank branching in 2007 as a natural experiment, which confirm the robustness of our findings. Bank competition thus enhances the competition in the product market.

Keywords: Bank competition, Industrial structure, External financial dependence, Deregulation

JEL Classification: G21, G28, L11

Suggested Citation

Gong, Di and Lu, Liping and Wu, Weixing and Zhou, Fan, Bank Competition and Industrial Structure: Evidence from China (October 31, 2018). Available at SSRN: https://ssrn.com/abstract=3275844 or http://dx.doi.org/10.2139/ssrn.3275844

Di Gong (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Liping Lu

VU University Amsterdam - Department of Finance and Financial Sector Management ( email )

De Boelelaan 1105
NL-1081HV Amsterdam
Netherlands

Weixing Wu

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Fan Zhou

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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