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Bank discrimination, holding bank ownership, and economic consequences: Evidence from China

By Zhengfei Lu, Jigao Zhu and Weining Zhang

Abstract

This paper finds that compared with Chinese state-owned firms, non-state-owned firms have a greater propensity to hold significant ownership in commercial banks. These results are consistent with the notion that because non-state-owned firms are more likely to suffer bank discrimination for political reasons, they tend to address their financing disadvantages by building economic bonds with banks. We also find that among non-state-owned firms, those that hold significant bank ownership have lower interest expenses, and are less likely to increase cash holdings but more likely to obtain short-term loans when the government monetary policy is tight. These results suggest that the firms building economic bonds with banks can enjoy benefits such as lower financial expenses and better lending terms during difficult times. Finally, we find that non-state-owned firms with significant bank ownership have better operating performance. Overall, we find that firms can reduce discrimination through holding bank ownership. (C) 2011 Elsevier B.V. All rights reserved.Business, FinanceEconomicsSSCI6ARTICLE2341-3543

Topics: Bank discrimination, Holding bank ownership, State-owned firms, Political connections, Bank loan, POLITICALLY CONNECTED FIRMS, GOVERNMENT OWNERSHIP, CAPITAL STRUCTURE, CASH HOLDINGS, CREDIT, JAPAN, PERFORMANCE, BEHAVIOR, FINANCE, CHOICE
Publisher: journal of banking finance
Year: 2012
DOI identifier: 10.1016/j.jbankfin.2011.07.012
OAI identifier: oai:localhost:20.500.11897/163689
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