American Economic Journal: Economic Policy
no. 1, February 2023
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.
Cao, Yiming, Raymond Fisman, Hui Lin, and Yongxiang Wang.
"SOEs and Soft Incentive Constraints in State Bank Lending."
American Economic Journal: Economic Policy,
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Public Enterprises; Public-Private Enterprises
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Socialist Institutions and Their Transitions: Financial Economics