Banks have a significant funding-cost advantage if their liabilities are protected by bailout guarantees. We construct a corporate finance-style model showing that banks can exploit this funding-cost advantage by just intermediating funds between investors and ultimate borrowers, thereby earning the spread between their reduced funding rate and the competitive market rate. This mechanism leads to a crowding-out of direct market finance and real effects for bank borrowers at the intensive margin: banks protected by bailout guarantees induce their borrowers to leverage excessively, to overinvest, and to conduct inferior high-risk projects. We confirm our model predictions using U.S. panel data, exploiting exogenous changes in banks' political connections, which cause variation in bailout expectations. At the bank level, we find that higher bailout probabilities are associated with more wholesale debt funding and lending. Controlling for loan demand, we confirm this effect on bank lending at the bank-firm level and find evidence on loan pricing consistent with a shift towards riskier borrower real investments. Finally, at the firm level, we find that firms linked to banks that experience an expansion in their bailout guarantees show an increase in their leverage, higher investment levels with indications of overinvestment, and lower productivity.

This study examines the economic consequences of China’s Three-Red-Lines policy—introduced in 2021 to cap real estate developers’ leverage by imposing strict thresholds on debt ratios and liquidity. Developers breaching these thresholds experienced sharp declines in financing, land acquisitions, and financial performance, with privately-owned developers disproportionately affected relative to state-owned firms. Using granular project-level data, we document significant drops in sales and a demand shift from private to state-owned developers. The policy also reduced local governments’ land sale revenues, prompting greater reliance on hidden local government financing vehicles for land purchases. The policy induced broad structural changes in China’s housing and land markets.

The economic institutionalist literature often suggests that sub-optimal institutional arrangements impart unique distortions in China, and excessive corporate debt is a symptom of this condition. However, lax monetary policies after the global financial crisis, and specifically, quantitative easing have led to concerns about debt bubbles under a wide range of institutional regimes. This study draws on data from Chinese listed firms, supplemented by numerous macroeconomic control variables, to isolate the effect of international capital flows from other drivers of firm leverage. We conclude that the rise in, and distribution of, Chinese corporate debt can partly be as-cribed to the effects of monetary policy outside of China and that Chinese institutional features amplify these effects. Whilst Chinese firms are affected by developments in the global financial ecosystem, domestic institutional realities and distortions may unevenly add their own particular effects, providing further support for and extending the variegated capitalism literature.

A unique natural experiment in China – the city-level staggered introduction of admin-istrative approval centers (AAC) – reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Fol-lowing the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings de-creases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications on firms’ financial management.

The study indicates that under conditions of financial repression, a enterprise’s ESG performance significantly impacts the extent of its short-term debt used for long-term purposes. The mechanism test reveals that ESG performance mitigates the degree of short-term debt for long-term use through three pathways: enhancing information transparency, alleviating financing constraints, and curbing excessive investment. Further research suggests that the influence of ESG performance on the use of short-term debt for long-term purposes is more pronounced among private enterprises, high-pollution and high-energy-consuming enterprises, and enterprises in underdeveloped regions. This paper enriches the research on the relationship between ESG performance and corporate financing decisions.

Purpose – This paper takes the Shanghai-Shenzhen-Hong Kong Stock Connect as a quasi-natural experimentand investigates the impact of capital market liberalization on the corporate debt maturity structure. It also aimsto provide some policy implications for corporate debt financing and further liberalization of the capital marketin China. Design/methodology/approach – Employing the exogenous event of Shanghai-Shenzhen-Hong Kong StockConnect and using the data of Chinese A-share firms from 2010 to 2020, this study constructs a difference-in-differences model to examine the relationship between capital market liberalization and corporate debt maturitystructure. To validate the results, this study performed several robustness tests, including the parallel test, theplacebo test, the Heckman two-stage regression and the propensity score matching. Findings – This paper finds that capital market liberalization has significantly increased the proportion of long-term debt of target firms. Further analyses suggest that the impact of capital market liberalization on thedebt maturity structure is more pronounced for firms with lower management ownership and non-Big 4 audit.Channel tests show that capital market liberalization improves firms’ information environment and curbsself-interested management behavior. Originality/value – This research provides empirical evidence for the consequences of capital marketliberalization and enriches the literature on the determinants of corporate debt maturity structure. Further thisstudy makes a reference for regulators and financial institutions to improve corporate financing through thegovernance role of capital market liberalization.

The scale expansion of low-carbon industries and the green transformation of carbon-intensive industries are two sides of the same coin in achieving the “dual carbon” goals. However, research on transition finance supporting the upgrading of traditional existing carbon-intensive industries remains insufficient. The key to examining the effectiveness of transition finance lies in distinguishing whether the supported enterprises are engaging in greenwashing or green evolution. Based on data of Chinese A-share listed companies in the carbon-intensive industries, an empirical study is conducted and offers the following findings: (1) Transition finance not only does not increase greenwashing but also promotes comprehensive green innovation in carbon-intensive enterprises. (2) In terms of the influencing mechanism, transition finance exerts “resource effects” and “signaling effects,” promoting green innovation by improving debt maturity mismatch and attracting green institutional investors. (3) Heterogeneity analysis shows that the positive impact of transition finance on green innovation is particularly pronounced among enterprises in the eastern region, state-owned enterprises, and those with lower levels of managerial myopia. (4) Further industry spillover effects analysis reveals that transition finance empowers green innovation within industries though peer effects and competitive effects. The findings are essential for understanding the effectiveness of transition finance and offer valuable insights for policymakers.

The e-CNY, with its information transparency and financial inclusion, activates an innovative solution to cure the financing obstacles among the small and medium enterprises in China. The research establishes a game model between enterprises and commercial banks embedded in information asymmetry, and incorporates the e-CNY payment choice within the framework to analyse the cure effect of e-CNY on enterprise financing obstacles. With equilibrium results calculated, it simulates the outcomes of changing parameters on the behaviours of enterprises and banks. The findings involve that, based on the incremental utility of e-CNY and subsidies attached, e-CNY is preferred in transaction, reducing the bad debt risk caused by misalignment when both achieving excess returns. The People’s Bank of China must strengthen a more transparent publicity of e-CNY and structure an inclusive system of financial regulation to well use digital currency and realise high-quality socio-economic development.

Recently, the Chinese Government has strengthened the enforcement of bankruptcy laws to protect creditors’ rights. This study shed light on the effect of creditor protection on asset-debt maturity mismatch by employing a quasi-natural experiment in China. The results show that creditor protection mitigates maturity mismatch, and the effect is more pronounced among financially constrained firms. Results remain robust after the dynamic effects test, placebo test, propensity score matching approach, entropy balancing method, and controlling for COVID-19 shocks. Mechanism tests show that creditor protection decreases the cost of debt and reduces over-investment. The effect of creditor protection is pronounced in private companies, financially independent companies, and companies with secured loans. Creditor rights can alleviate maturity mismatch in firms with medium ownership concentration and managerial ownership levels. Economic consequences studies suggest that creditor protection reduces corporate default risk. This study reveals the mechanism and effect of creditor protection on asset-debt maturity mismatch in emerging markets, providing recommendations to policymakers for assessing and improving bankruptcy law regimes.

Local financial development is crucial for advancing regional financial supply side structural reform, enabling local governments to leverage financial instruments to effectively mobilize land resources and foster competitive growth. The introduction of numerous financial products linked to land-related rights and interests has resulted in a pronounced transmission and interconnection of fiscal and financial risks across regions. This study examines the impact of local financial development on land financialization in China using panel data from prefecture-level cities and detailed information on land mortgages. The findings indicate that the establishment of city commercial banks (CCBs) contributes to the progress of land financialization by incentivizing local government financing vehicles to participate in land mortgage financing, increasing the transfer of debt risks to the financial sector. Notably, the impact of CCBs on land financialization is more pronounced in regions with urban agglomeration, high GDP manipulation, inadequate local financial regulation, and robust implicit government guarantees. Further analysis reveals that CCB establishment has negative spillover effects on land financialization in neighboring areas, while expansion strategies such as establishing intercity branches, engaging in cross-regional mergers, and relaxing regulations have mitigated the rise of land financialization at the regional level. This study provides policy recommendations that focus on reducing local governments’ reliance on land financing and enhancing the prevention and management of financial risks.