The effect of banking system reform on investment-cash flow sensitivity: Evidence from China

Ying Ju Tsai, Yi Pei Chen, Chi Ling Lin, Jung Hua Hung

Research output: Contribution to journalArticlepeer-review

27 Scopus citations

Abstract

This study investigates the effect of banking system reform on the investment behavior of Chinese listed firms. We find that the politically-oriented investment problem for state-controlled listed companies is mitigated by the reform due to foreign participation in the management of Chinese banks. The problem of underinvestment in non-state-controlled listed companies also appears to be alleviated due to an increase of bank loans. We include leverage in our analysis and the main findings are robust. The results provide evidence that Chinese banking system reform has increased the efficiency of resource allocation, easing investment distortions in state-controlled listed companies and reducing financial constraints in non-state-controlled listed companies.

Original languageEnglish
Pages (from-to)166-176
Number of pages11
JournalJournal of Banking and Finance
Volume46
Issue number1
DOIs
StatePublished - Sep 2014

Keywords

  • Banking system reform
  • China
  • Financial constraints
  • Investment-cash flow sensitivity

Fingerprint

Dive into the research topics of 'The effect of banking system reform on investment-cash flow sensitivity: Evidence from China'. Together they form a unique fingerprint.

Cite this