A Study On Banking Sector Concentration And The Supply Of Loans For Zombie Firms

As a key engine for supply-side structural reform,the disposal of zombie enterprises has been the top priority for Chinese government in addressing corporate debt risks and improving resources allocation.And the reasons why zombie enterprises survive can be associated with bank lending.Given the profound influence of banking structure on bank credit behaviors,this paper first analyses the endogenous financial friction mechanism between banking concentration and zombie enterprises loan as well as the exogenous mechanism of government intervention and financial regulation,and then by identifying zombie enterprises and matching loan data,it depicts the financial and debt characteristics of zombie enterprises,so the impact of banking concentration on the banks' propensity to lend to zombie enterprises can be verified and tested.Moreover,the paper puts forward policy suggestions to control the banks' loan propensity to lend to zombie enterprises from the perspectives of optimizing the banking market structure,perfecting financial regulation and improving information sharing mechanism.The main conclusions are as follows:First,banks have a negative intention to lend to zombie enterprises,that is,banks do not intend to lend to zombie enterprises.As the financial system deepens the reform,the marketization and autonomy of bank business activities have been displayed.How banks decide on zombie enterprise loan scale follows the market standard.Second,a rise in banking concentration would weaken banks' negative propensity to lend to zombie enterprises,which means that banking concentration would boost such loan.Market channels and government intervention mechanism have been confirmed,and banking concentration did encourage banks to make profits by the expense of relaxing credit standards,and the government called on banks to provide credit so as to avoid business failures.Third,from the perspective of collateral characteristic,providing collateral can reduce the credit rationing brought by information asymmetry,which will help enterprises increase loans.From the perspective of loan types,under government intervention mechanism,banking concentration facilitate banks' intention to issue credit loan to zombie enterprise,and the government adds credit to zombie enterprise through implicit guarantee,so that zombie enterprise that fail to meet the credit standard can obtain credit loan with lower cost.From the perspective of loan term,owing to high market concentration,the banks' control over the market is greatly strengthened,and the bank tends to provide the enterprise with long-term loan to develop a sustainable relationship,and thus the channel of relationship lending is confirmed.Fourth,the cascading risk path of industry loan concentration in relationship lending plays an important role in China's banking system.The banks with a large share of loans outstanding in an industry in which the zombie company is located are more likely to provide liquidity to zombie firms,taking into account the risk of financial infection among zombie companies.The path of government intervention has also been partially confirmed.First,in order to achieve full employment and social stability,the government requires banks to provide credit to zombie enterprises in order to prevent their bankruptcy.Therefore,government intervention will increase banks' propensity to lend to zombie companies.Second,state-owned zombie enterprises with implicit government guarantees have an advantage over non state-owned zombie enterprises in terms of loan scale,and this advantage will be strengthened by banking concentration,which means that especially in places with higher bank concentration,state-owned zombie enterprises get more loans than non state-owned ones.The possible innovations of this paper are: There are abundant research on zombie firms,but there is scarce empirical evidence on the supply of loans for zombie firms and on its influencing factors in China.This paper extends previous studies that primarily discuss the formation of zombies and its crowding out effects.It is one of the first studies to illustrate empirically the linkages between banking concentration and the availability of bank credit to zombie firms in contributing to corporate debt vulnerabilities and low productivity.The main drawbacks of this paper include: There may be some limitations to identify zombie firms based on a sample of listed firms.The sample data of loan records and bank financial indicators are limited before 2007.