City Commercial Banks and Credit Allocation: Firm-Level Evidence

This paper investigates how government-led banking liberalization affects credit allocation by banks using as a quasi-natural experiment the establishment of city commercial (CCBs) in China. Based on more than three million corporate financial statements spanning over 16 years, we find that CCBs led to 6–14 % drop debt funding for private firms, well 1–2 rise their costs. At same time, infrastructure firms enjoyed nearly 6 increase and 100-basis-point interest costs despite inferior quality. The financing firm appears most severely affected municipalities where officials face high promotional pressures or fiscal constraints.