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Review of Financial Studies Vol. 32 No. 9 2019

Credit Allocation Under Economic Stimulus: Evidence from China

Lin William Cong1; Haoyu Gao2; Jacopo Ponticelli3; Xiaoguang Yang4

1 University of Chicago Booth School of Business · 2 Renmin University of China, Hanqing Institute and CUFE, CAFD · 3 Northwestern University Kellogg School of Management and CEPR · 4 Chinese Academy of Sciences, AMSS & UCAS

Abstract

We study credit allocation across firms and its real effects during China’s economic stimulus plan of 2009–2010. We match confidential loan-level data from the nineteen largest Chinese banks with firm-level data on manufacturing firms. We document that the stimulus-driven credit expansion disproportionately favored state-owned firms and firms with a lower average product of capital, reversing the process of capital reallocation toward private firms that characterized China’s high growth before 2008. We argue that implicit government guarantees for state-connected firms become more prominent during recessions and can explain this reversal. Received August 23, 2017; editorial decision November 15, 2018 by Editor Philip Strahan.

DOI
10.1093/rfs/hhz008
Volume
32
Issue
9
Pages
3412-3460
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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