Bank financing in China’s private sector : the payoffs of political capital

• Main Author: Zhou, Wubiao
• Other Authors: School of Humanities and Social Sciences
• Format: Article
• Language: English
• Published: 2012
• Subjects: DRNTU::Social sciences::Economic development::China
• Online Access: https://hdl.handle.net/10356/94491; http://hdl.handle.net/10220/7499
• Institution: Nanyang Technological University

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.