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“Subsidies” or “taxes”? Corporate credit misallocation induced by the nexus of state-owned enterprises and state-owned banks

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  • Han, Xuehui
  • Epetia, Ma. Christina F.
  • Cheng, Yuan

Abstract

Diverging from common claims made in the literature, this paper shows that “two-way” credit misallocation is linked to state ownership status. Specifically, not all Chinese state-owned firms benefit from their ownership status by obtaining lower interest costs as a type of subsidy. Some firms are subjected to higher interest costs as a form of tax. We report further evidence for the relationship between financial development and economic growth by accounting for heterogeneity in interstate banking coverage. From listed and unlisted firms’ data, we find that when the presence of state-owned banks is strong, state ownership-associated distortions in interest costs are more severe.

Suggested Citation

  • Han, Xuehui & Epetia, Ma. Christina F. & Cheng, Yuan, 2021. "“Subsidies” or “taxes”? Corporate credit misallocation induced by the nexus of state-owned enterprises and state-owned banks," Journal of Asian Economics, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:asieco:v:76:y:2021:i:c:s1049007821000750
    DOI: 10.1016/j.asieco.2021.101346
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    More about this item

    Keywords

    Credit misallocation; State-owned banks; State-owned enterprises; Productivity gains;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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