American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
SOEs and Soft Incentive Constraints in State Bank Lending
American Economic Journal: Economic Policy
vol. 15,
no. 1, February 2023
(pp. 174–95)
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.Citation
Cao, Yiming, Raymond Fisman, Hui Lin, and Yongxiang Wang. 2023. "SOEs and Soft Incentive Constraints in State Bank Lending." American Economic Journal: Economic Policy 15 (1): 174–95. DOI: 10.1257/pol.20200873Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- L32 Public Enterprises; Public-Private Enterprises
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- P34 Socialist Institutions and Their Transitions: Financial Economics