The interest group theory of banking sector expansion in China: Evidence from a quasi-natural experiment. (October 2020)

• Record Type: Journal Article
• Authors: Liu, Guanchun; Zhang, Chengsi; Zhu, Yueteng
• Is Part Of: Journal of international money and finance. Volume 107(2020)
• Publication Date: 2020-10
• Subjects: G21 -- G28 -- O16 -- P21; Banking sector expansion -- State-owned enterprises reform -- Interest group theory; International finance -- Periodicals; Foreign exchange -- Periodicals; Finances internationales -- Périodiques; Change -- Périodiques; Foreign exchange; International finance; Periodicals; 332.04205
• DOI: 10.1016/j.jimonfin.2020.102225
• Languages: English
• ISSNs: 0261-5606

Abstract

Highlights: We investigate if the state-owned enterprise group inhibits banking sector expansion. We exploit a bank-deregulation policy in 2009 as a quasi-natural experiment. Higher state-owned shareholdings lead to fewer commercial bank entries. This is especially so in regions with more intensive industry and bank competition. Less SOE influence may promote financial development, and capital allocation efficiency. Abstract: This study investigates whether the state-owned enterprise group inhibits banking sector expansion, thus impeding competition in China, as depicted in the interest group theory. To address potential endogeneity, our identification scheme employs a Chinese bank-deregulation policy for joint-equity and city commercial banks implemented in 2009. We collect Chinese bank branch data manually and use the difference-in-difference estimation method to explore two-dimension variations in the interest group theory: state-owned shareholding and year. The results show that higher state-owned shareholdings lead to fewer commercial bank entries, especially in regions with more intensive industry and bank competition. A further counterfactual analysis indicates that a 24% loss of the observed increase in the number of small- and medium-sized banks from 2009 to 2013 is attributed to impediments of state-owned capital. These findings suggest that mitigating the influence of state-owned enterprises is likely to simultaneously promote financial development and capital allocation efficiency.