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Do credit squeezes influence firm survival? An empirical investigation of China

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  • Zhang, Dongyang

Abstract

This paper analyses the effect of a “credit squeeze” policy that was set by the Chinese government in 2007, increasing the strictness for firm-level bank loans. We adopt the difference-in-difference (DID) model to compare the survival rate change before and after the policy was implemented. We further explore the mechanism behind how the “credit squeeze” policy reduced the probability of firms surviving the market from perspectives such as financial constraints and ownership structures. The “credit squeeze” policy significantly increased firms’ operating costs and lowered firms’ productivity. In addition, we find that the zombie firm phenomenon existing in state-owned enterprises has a large impact on our estimation. Our results provide practical policy implications regarding the compromise between systematic debt risk and firm survival.

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  • Zhang, Dongyang, 2020. "Do credit squeezes influence firm survival? An empirical investigation of China," Economic Systems, Elsevier, vol. 44(3).
    • Handle: RePEc:eee:ecosys:v:44:y:2020:i:3:s0939362518304588
    DOI: 10.1016/j.ecosys.2020.100790
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    More about this item

    Keywords

    Credit squeeze; Firm survival; Ownership structure; Difference-in-difference policy implications;
    All these keywords.

    JEL classification:

    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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