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Bank Financing in China's Private Sector: The Payoffs of Political Capital

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  • Zhou, Wubiao

Abstract

Summary In Reform Era China, bank financing plays a significant role in entrepreneurial development, despite a severe information asymmetry problem and a discriminatory legal/regulatory environment. This paper offers a political explanation for how Chinese entrepreneurs obtain bank loans by arguing that entrepreneurs actively invest in political capital to overcome bank financing obstacles. Pursuing membership in the legislative or semi-legislative organs of the Chinese government is an effective strategy for private entrepreneurs to obtain political capital. Empirical analysis suggests that a legislative membership helps entrepreneurs get access to bank loans; and it may be more useful for small and medium enterprises.

Suggested Citation

  • Zhou, Wubiao, 2009. "Bank Financing in China's Private Sector: The Payoffs of Political Capital," World Development, Elsevier, vol. 37(4), pages 787-799, April.
    • Handle: RePEc:eee:wdevel:v:37:y:2009:i:4:p:787-799
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    References listed on IDEAS

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