SOEs and Soft Incentive Constraints in State Bank Lending
- American Economic Journal: Economic Policy (Forthcoming)
We study how Chinese state bank managers' lending incentives impact lending
to state-owned enterprises. 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.
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