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Who Gets Credit? The Behavior of Bureaucrats and State Banks in Allocating Credit to Chinese State-Owned Enterprises

Robert Cull, and Lixin Colin Xu
Full Text: Adobe Acrobat (PDF) [152 KB]

Using a sample of Chinese state-owned enterprises spanning 1980 to 1994, we investigate the factors that determine the sources of finance for firm-level fixed investment, including retained earnings, bank finance, and government transfers. Direct government transfers were not significantly associated with profitability throughout the period. In contrast, bank finance was positively linked to both profitability and some types of reform. Reforms that enabled managers to self-select, and thus expose themselves (and their employees) to greater risk, were positively associated with acquiring bank finance. The association between bank finance and profitability weakened in the 1990s as banks increasingly assumed bailout responsibility.

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