Research On The Impact Of Financial Decentralization On Financial Efficiency Of China

In the journey of China's transformation and development,the theory of economic decentralization has a strong explanatory power.The theory of economic decentralization mainly emphasizes the distribution of fiscal power between central government and local government within a long duration.However,since the implementation of tax-sharing system reform in 1994,local fiscal power has been greatly weakened,which results in the transition of focus of economic decentralization from fiscal decentralization to financial decentralization.Based on the sorting out of the historical process of China's financial decentralization,this paper examines the impacts of financial decentralization on the efficiency of financial function,the efficiency of financial allocation and the efficiency of financial management.Finally,according to the conclusion of the empirical study,the relevant policy recommendations are put forward.The main work of this paper is shown in the following four aspects.The first one is to measure government-market financial decentralization.Financial decentralization can be divided into two dimensions: central-local financial decentralization and government-market financial decentralization,but there is little research on the latter one.When the government participates in the allocation of financial resources,it is more inclined to provide financial support for state-owned enterprises.Therefore,this paper uses the ratio of non-state-owned enterprise credit share to state-owned enterprise credit share as a measure of government-market financial decentralization.Considering the availability of data,panel data is used to estimate the credit shares of state-owned enterprises and non-state-owned enterprises from 1978 to 2018.The final data of government-market financial decentralization shows that the market began to play a more important role in the allocation of financial resources since 1978,but after the 1997 Asian financial crisis the government began to allocate more financial resources.After entering the 21 st century,the market once again occupies a dominant position,and with the evolution of time,the main role of the market becomes more and more obvious.Secondly,this paper studies the impact of financial decentralization on the efficiency of financial function which is economic growth.The empirical results show that financial decentralization in favor of local government and market both hinder economic growth,but the estimation coefficient of the latter in the regression model is very small and has more statistical significance than economic significance.In order to verify the robustness of the empirical results,control variables such as industrial structure,marketization level,provincial economic competition and financial agglomeration are added to alleviate the errors of missing variables.The conclusion is still robust.In order to further deal with the endogenous problem of two-way causality,the number of financial institutions owned by each province during the period of the Republic of China is used as the instrument variable of financial decentralization.The estimation result of the two-stage least square method is still robust,and effectively corrects the downward bias of the estimation coefficient in OLS regression.In addition,in the sub sample of different regions,the central-local financial decentralization has a negative and positive impact on the economic growth of the eastern and western regions respectively,but has no significant impact on the central region.The government-market financial decentralization has a positive impact on the economic growth of the western region,but has no significant impact on the other two regions.Thirdly,this paper examines the impact of financial decentralization on the efficiency of financial allocation,which is divided into direct efficiency and indirect efficiency,by using the spatial econometric model.It is found that financial decentralization which is in favor of local government and market will improve the direct efficiency of financial allocation.The regression coefficient of spatial lag shows that adjacent areas have more power to allocate financial resources than the central government,and at the same time,it will promote the direct efficiency of financial allocation in this region.However,the spatial lag regression coefficient of government-market financial decentralization is not significant,which indicates that the government-market finance decentralization in adjacent areas will not affect the direct efficiency of financial allocation in this region.In terms of the indirect efficiency of financial allocation,the financial decentralization which is in favor of local government does reduce the marginal productivity of capital,while the financial decentralization which is in favor of market can improve the marginal productivity of capital.The further decomposition of spatial effect shows that financial decentralization which is in favor of local governments in adjacent areas can improve the marginal productivity of capital in this region,while financial decentralization which is in favor of market in adjacent areas will reduce the marginal productivity of capital in this region.Finally,the conclusion of the econometric model is still robust after selecting different spatial matrix models.Fourthly,this paper studies the impact of financial decentralization on the efficiency of financial management.It is found that central-local financial decentralization intensifies the growth of Bad Loan Ratio of banks,while government-market financial decentralization helps to restrain the growth of Bad Loan Ratio of banks.In order to alleviate the endogenous problem,the systematic GMM method is used to re-estimate the model.The influential direction of financial decentralization on the growth rate of Bad Loan Ratio of banks remains unchanged,but the absolute value of the estimation coefficient of central-local financial decentralization becomes smaller,which indicates that instrumental variables correct the overestimation of the effect of central-local financial decentralization caused by endogenous problems.In terms of bank heterogeneity,state-owned commercial banks,joint-stock commercial banks and municipal commercial banks are distinguished.The estimation results show that the central-local financial decentralization has a positive effect on the growth of Bad Loan Ratio of joint-stock commercial banks and municipal commercial banks,but can inhibit the growth of Bad Loan Ratio of state-owned commercial banks.The government-market financial decentralization promotes the growth of Bad Loan Ratio of state-owned commercial banks,but reduces the growth of Bad Loan Ratio of municipal commercial banks.The marginal contribution of this paper is mainly manifested in the following three aspects: firstly,it discusses the impact of financial decentralization on financial management efficiency at the micro level for the first time.From the existing research,scholars are mainly concerned about the impact of financial decentralization on the macro level,and there are few literatures about the impact of financial decentralization on micro financial entities.The panel data of more than 100 banks are sorted out by using various databases and annual reports of banks,which provides the possibility for empirical research.The micro level research is similar to a mechanism study,which can help us understand how economic growth and financial risk are transmitted through the micro subject;Secondly,it discusses the influence of the government-market financial decentralization.Financial decentralization involves two dimensions: one is vertical decentralization between the central government and the local government,the other is horizontal decentralization between government and market.In the existing empirical studies,almost all the literatures define the financial decentralization as the decentralization between the central government and the local government,but there is little discussion on the financial decentralization between the government and the market.This paper uses the ratio of non-state-owned enterprise credit share and state-owned enterprise credit share to measure government-market financial decentralization.Using this proxy variable,this paper further discusses the impact of government-market financial decentralization on financial efficiency;Thirdly,in order to overcome the endogenous problem in the estimation model,the number of financial institutions in the period of the Republic of China is selected as the instrument variable of financial decentralization.Since the instrumental variable is historical data,it can avoid the reverse causality problem and obtain unbiased estimator.The use of the instrumental variable not only helps us to identify causality,but also helps us understand how the history shaped the current economic structure.