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Frontiers of Economics in China

Front. Econ. China    2018, Vol. 13 Issue (2) : 281-311     https://doi.org/10.3868/s060-007-018-0016-5
Orginal Article |
Does Over-credit Stimulate Corporate Investment? Evidence from Listed Companies in China
Yuying Jin1(), Dong Zhao2()
1. R&D Administration, Shanghai University of Finance and Economics, Shanghai 200433, China
2. School of International Business Administration, Shanghai University of Finance and Economics, Shanghai 200433, China
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Abstract

We define and quantify for the first time over-credit at the firm level, which refers to the case in which the amount of bank credit that a firm obtains exceeds its expenditure on corporate investment for the year. Then, we explore how over-credit affects corporate investment to determine whether credit expansion in China is consistent with the principle of finance serving the real economy. The results show that over-credit promotes firm investment, and this effect was enhanced by the housing boom. However, the effect of the property market reversed after 2012, owing to China’s economic transition from a quantitative to a structural mismatch between supply and demand. Finally, we explore how over-credit affects the capacity utilization ratio and whether it has aggravated the overcapacity problem in China. The results show that over-credit reduces firms’ capacity utilization ratio. This finding indicates that excessive credit expansion has exacerbated the overcapacity problem in China.

Keywords over-credit      corporate investment      capacity utilization ratio     
Issue Date: 02 May 2018
 Cite this article:   
Yuying Jin,Dong Zhao. Does Over-credit Stimulate Corporate Investment? Evidence from Listed Companies in China[J]. Front. Econ. China, 2018, 13(2): 281-311.
 URL:  
http://journal.hep.com.cn/fec/EN/10.3868/s060-007-018-0016-5
http://journal.hep.com.cn/fec/EN/Y2018/V13/I2/281
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