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SOEs and Soft Incentive Constraints in State Bank Lending†

SOEs and Soft Incentive Constraints in State Bank Lending† AbstractWe 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. (JEL G21, G28, L32, O16, P34). http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal Economic Policy American Economic Association

SOEs and Soft Incentive Constraints in State Bank Lending†

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Publisher
American Economic Association
Copyright
Copyright © 2023 © American Economic Association
ISSN
1945-7731
DOI
10.1257/pol.20200873
Publisher site
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Abstract

AbstractWe 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. (JEL G21, G28, L32, O16, P34).

Journal

American Economic Journal Economic Policy – American Economic Association

Published: Feb 1, 2023

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