Using a proprietary loan data set, we study how a large state-owned bank uses its internal ratings in loan granting decisions around China’s 2008 economic stimulus programme that relies on bank credit for financing. We find that there is little change in the rating process of the bank, and internal ratings remain a valid, albeit weaker, predictor of loan interest rates in the stimulus period. Weakened rating-interest rate relation is concentrated for borrowers from the industries that the stimulus programme focuses on, for state-owned enterprises (SOEs), for bank branches operating in provinces with a low level of credit market marketization, or when the credit rater and loan officer have no collaboration before. We also find that interest rates remain a valid predictor of ex-post loan outcomes in the stimulus period. Overall, there is no evidence that loan decisions of the state-owned bank are severely compromised in the economic stimulus period as speculated by some media. By showing how a state-owned bank maneuvers between supporting government stimulus initiative and maintaining market-based lending, we contribute to the limited literature on the roles of internal ratings in loan contracting decisions, and add to the debate over the roles of state-owned banks.

Using proprietary individual level loan data, this paper explores the economic consequences of the 2009 bank entry deregulation in China. Such deregulation leads to higher screening standards, lower interest rates, and lower delinquency rates for corporate loans from entrant banks. Consequently, in deregulated cities, private firms with bank credit access increase asset investments, employment, net income, and ROA. In contrast, the performance of state-owned enterprises (SOEs) does not improve following deregulation. Deregulation also amplifies bank credit from productive private firms to inefficient SOEs due mainly to SOEs’ soft budget constraints. This adverse effect accounts for 0.31% annual GDP losses.

Working with unique data on land values in 35 major Chinese markets and a panel of firms outside the real estate industry, we estimate standard investment equations that yield no evidence of a collateral channel effect. This is markedly different from previous work on the United States and Japan which finds economically large impacts. One reason for this appears to be that some of the most dominant firms in China are state-owned enterprises (SOEs) which are unconstrained in the sense that they do not need to rely on rising underlying property collateral values to obtain all the financing necessary to carry out their desired investment programs. However, we also find no collateral channel effect for non-SOEs when we perform our analysis on disaggregated sets of firms. Norms and regulation in the Chinese capital markets and banking sector can account for why there is no collateral channel effect operating among these firms. We caution that our results do not mean that there will be no negative fallout from a potential real estate bust on the Chinese economy. There are good reasons to believe there would be, just not through a collateral channel effect.

This paper created a framework for a dynamic institutional analysis . (1) Reduction of the conviction and motivation inside economic factors (We think that this is the inducing factors of system changes ), (2) system changes will be ultimately beneficial to the efficiently allocation of resources, (3) the typical economic factors .This is from the old institutional analysis framework , Mr. Frank. Knight's economic thought and historical materialism. Based on this analytical framework, we researched Transformation of China's state-owned enterprises, we come to conclusion that it is the time for the market forces play an basic role in the allocation of resources .

China’s listed companies often exchange corporate assets with their unlisted affiliates such as parent companies, which is rarely observed in their American counterparts. We find that listed companies which are incompletely restructured from former state-owned enterprises tend to exchange more profitable assets for less profitable assets (i.e., tunneling). However, when there is a need to avoid reporting losses and to raise additional capital, listed companies tend to exchange less profitable assets for more profitable assets (i.e., propping). We also find that the market reacts indifferently to assets exchange announcement. Finally, we find that assets exchange with tunneling (propping) incentive is associated with detrimental (improved) post-exchange stock performance and financial performance. In summary, this study contributes to the corporate assets literature by providing two new incentives (tunneling and propping).

This study examines the relation between political connections and investment efficiency in China. For listed state-owned enterprises (SOEs), we find that the sensitivity of investment expenditure to investment opportunities is significantly weaker for those with than without political connections. Politically connected SOEs over-invest significantly more than non-connected SOEs. This negative impact of political connections is primarily observed in SOEs controlled by local governments and/or in SOEs without sufficient investment opportunities. However, for private enterprises, investment expenditure is significantly more sensitive to investment opportunities and over-investment is significantly less in politically connected firms than in those without such connections. We further show that over-investment reduces firm value across the board for both SOEs and private enterprises. Taken together, our findings suggest that political connections distort investment behavior, reduce investment efficiency, and damage firm value in listed SOEs in China, but for listed private enterprises, political connections improve investment efficiency, reduce over-investment, and consequently enhance firm value.

This paper empirically investigates the determinants of financing decisions in Chinese listed firms, using 3,196 firm-year observations from the Shanghai Stock Exchange during the period 2001–2005. Thereby, we investigate the effects of differences in institutions across Chinese provinces and municipalities, and compare the financing choices of state-owned and private-controlled enterprises. We find that a better legal environment negatively affects the debt ratio and the proportion of debt that consists of bank loans in SOEs as well as private-controlled enterprises. Conversely, regional banking development positively influences these two variables. If anything, these effects of the rule of law and regional banking development on leverage are stronger for private-controlled firms. SOEs have lower debt ratios in regions with better stock market access, while private-controlled firms rely less on bank loans in regions with more government intervention in business. Finally, we document that SOEs’ overall debt ratio and composition of debt are comparable to those of private-controlled firms.

We investigate the choice problem in the massive Chinese restructuring campaign that has been described as “grasping the large and letting go of the small,” in which a third of the million or so Chinese state-owned enterprises were either corporatized or privatized. Corporatization differs from privatization in the Chinese context, as in the former case the state remains a large shareholder, whereas in the latter case it has little or no ownership. Using a panel of provincial level statistics, we show that greater local employment pressure, less local fiscal pressure, and a more corrupt local business environment all lead to a lesser likelihood that privatization will be chosen over corporatization. Privatization is found to yield consistent efficiency gains over corporatization in terms of employment and firm profitability. Our evidence is supportive of the theoretical framework of Boycko, Shleifer, and Vishny (1996), who model privatization as an endogenous decision in which politicians trade off employment pressure against public fiscal interest.

Business groups organized by pyramids enable the ultimate shareholders to control a portfolio of firms with less cash requirement. Further, corporate pyramid induces an internal capital market and makes capital transfer more convenient within the pyramid. In China, the state and business groups control a large number of listed firms through pyramidal ownership structure. What role does the corporate pyramid play in firms’ investment decisions? What is its influence on firm performance? This paper investigates the capital investment and firm performance from the perspective of pyramidal ownership structure. We find that as the layers of corporate pyramid increases, the capital overinvestment declines. The negative relations between pyramid and overinvestment exist for both state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs), which indicate that increasing the layers within corporate pyramid reduces the likelihood of overinvestment of the listing firm and improving investment efficiency. Moreover, we show that the effects of increasing the layers of corporate pyramid on accounting performance are different for SOEs and NSOES. For SOEs, increasing the layers of pyramid results in less government interference on the listed firm and more flexibility in operate. Therefore, increasing pyramidal layers is positively related to accounting performance. While for NSOEs, pyramiding is to build an internal capital market for the ultimate shareholder’s capital investment. Although pyramid may reduce overinvestment of the listing firm, agency costs may offset the positive effect and induce a lower accounting performance.

We investigate the endogenous choice problem of Chinese state-owned enterprises in their decision on whether to corporatize or privatize. Corporatization differs from privatization in the Chinese context, as in the former case, the state remains as a large shareholder, and in the latter case, the state has little or no ownership. Using a panel of provincial statistics, we show that the larger the local employment pressure, the less likely we see privatization; the smaller the local fiscal pressure, the less likely we see privatization; the more corrupted the local business environment, the less likely we see privatization. Privatization is found to yield consistent efficiency gains over corporatization measured in terms of both employment and firm profitability. Our evidences are supportive of the theoretical framework of Boycko and Shleifer and Vishny (1996) where they model privatization as politicians’ endogenous decision trading off employment pressure against public fiscal interest.