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What Causes the Influence of Bank Channel towards Corporate Investment: Liquidity or Economic Policy Uncertainty?

Author

Listed:
  • Wentao GU

    (Institute of quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.)

  • Wanting QI

    (Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.)

  • Yutong WANG

    (Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.)

  • Lixiang LI

    (Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.)

  • Liyan PAN

    (Quantitative economics, Department of statistics, Zhejiang Gongshang University, Hangzhou 310018, China.)

Abstract

Given the bank-led financial system and unique financial environment in China, the majority of companies depend on external financing, particularly through bank credit, to acquire funds for investment activities. This paper investigates whether the influence on bank credit channels stems from liquidity, economic policy uncertainty, or both, through an empirical study involving a sample of 517 companies listed on the Shanghai and Shenzhen A-share main boards. The study reveals that corporate investment expenditures through bank credit channels are significantly inhibited by economic policy uncertainty. Simultaneously, corporate investment is affected differently by the bank liquidity crisis resulting from non-economic policy uncertainty, owing to various government actions. The empirical results obtained through the threshold panel models further demonstrate that the effects of uncertainty and liquidity on investment vary across different industries, ownership structures, and growth opportunities. Our findings contribute to the discourse on promoting corporate investment, bolstering bank liquidity, and enhancing economic policy stability in the intricate economic environment of emerging economies.

Suggested Citation

  • Wentao GU & Wanting QI & Yutong WANG & Lixiang LI & Liyan PAN, 2024. "What Causes the Influence of Bank Channel towards Corporate Investment: Liquidity or Economic Policy Uncertainty?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 81-101, October.
    • Handle: RePEc:rjr:romjef:v::y:2024:i:3:p:81-101
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    More about this item

    Keywords

    economic policy uncertainty; liquidity; bank credit; corporate investment; threshold panel model;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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