The effect of banking system reform on investment–cash flow sensitivity: Evidence from China

Ying-Ju Tsai, Yi-Pei Chen, Chi-Ling Lin and Jung-Hua Hung

Journal of Banking & Finance, 2014, vol. 46, issue C, 166-176

Abstract: This study investigates the effect of banking system reform on the investment behavior of Chinese listed firms. We find that the politically-oriented investment problem for state-controlled listed companies is mitigated by the reform due to foreign participation in the management of Chinese banks. The problem of underinvestment in non-state-controlled listed companies also appears to be alleviated due to an increase of bank loans. We include leverage in our analysis and the main findings are robust. The results provide evidence that Chinese banking system reform has increased the efficiency of resource allocation, easing investment distortions in state-controlled listed companies and reducing financial constraints in non-state-controlled listed companies.

Keywords: Banking system reform; Investment–cash flow sensitivity; Financial constraints; China (search for similar items in EconPapers)
JEL-codes: G18 G32 G34 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:46:y:2014:i:c:p:166-176

DOI: 10.1016/j.jbankfin.2014.04.022

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