The Influence Of Bank-Enterprise Common Ownership On Corporate Credit In China

When studying the loans of listed companies in China,this paper finds that the frequency and amount of some companies obtaining bank loans are much higher than the industry average.Since these companies have different equity ownerships,scales,industries,and profitability,and do not declare the corresponding loans as related loans in their annual reports,it is difficult to explain this phenomenon with existing theories of credit rationing,scale effects,industry characteristics,political connections,social connections,or bank connections.Through in-depth mining of information,this paper finds that when these loan contracts are signed,most of the companies and the banks that lend them have one or more common shareholders,which might be the reason why these companies obtain higher loan frequencies and amounts.Since 2015,Chinese economic transformation has been accelerating.In order to make the financial industry better serve the real economy,the state advocates a model of integrated development of industrial capital and financial capital with equity as the core to realize the financial industry’s support for the real industry,that is,the industry-financial integration.Since Chinese law prohibits banks from directly holding shares in enterprises,the main way to realize industry-financial integration is for enterprises to directly hold shares in financial institutions.With the development of Chinese economy and the support of policies,it has become common for enterprises to hold shares in financial institutions.Many literatures have also conducted in-depth discussions on the industry-financial integration in China from the perspective of enterprises directly holding shares in financial institutions.However,few literatures examine Chinese industry-financial integration and its economic impact from the perspective of enterprises and banks being held by thirdparty major shareholders at the same time.The phenomenon that shareholders simultaneously hold a relatively high proportion of the stock shares of multiple companies in the same industry(or upstream and downstream industries)is common ownership.Bank-enterprise common ownership is a branch of common ownership,which refers to a phenomenon in which a bank and a company are held by one or more shareholders at the same time.With the gradual maturity of the capital market,institutional investors account for an increasing proportion of the market.In 2015,institutional investors owned about 70% to 80% of U.S.public companies,according to the American Investment Company Institution.The extremely high proportion of institutional investors has spawned many common ownership phenomena,and it is also common to see bank-enterprise common ownership.According to the loan data of listed companies in the United States from 2000 to 2012,about 60% of the loans were in the situation of bank-enterprise common ownership,and most of the banks and enterprises who signed these loan contracts had two or more common shareholders(Ojeda,2018).The loan data of listed companies in China from 2017 to 2018 collected in this paper also shows that about a quarter of the loans were in bank-enterprise common ownership situation.The overwhelming phenomenon of bank-enterprise common ownership and its economic consequences deserve attention.Therefore,this paper discusses the impact of bank-enterprise common ownership on Chinese corporate credit,and analyzes the impact of bank-enterprise common ownership on Chinese credit market and capital market.First,this paper discusses whether bank-enterprise common ownership can alleviate the company’s credit constraints and improve the company’s credit availability.This paper constructs a corporate loan model including bank-enterprise common ownership and finds that bank-enterprise common ownership will improve the company’s credit availability: the higher the bank-enterprise common ownership degree,the lower the company’s loan interest rate and the larger the loan scale.This paper then conducts an empirical study using the loan data of listed companies in China from 2017 to 2018,and the empirical results are consistent with the theoretical model outcome.Further empirical results show that the impact of bank-enterprise common ownership on corporate credit availability varies significantly due to the degree of corporate information transparency.Bank-enterprise common ownership has a more pronounced positive effect on credit availability for companies with lower level of information transparency(small-scale companies and unrated companies).Then,this paper analyzes the impact of bank-enterprise common ownership on corporate performance and investment efficiency.The empirical results show that bank-enterprise common ownership will significantly reduce the company’s performance and investment efficiency after obtaining a loan,indicating that bankenterprise common ownership reduces the resource allocation efficiency of Chinese credit market.Further heterogeneity analysis finds that company size is an important factor determining the impact of bank-enterprise common ownership on resource allocation efficiency in the credit market.When the company size is large,bankenterprise common ownership can help improve the efficiency of resource allocation;when the company size is small,bank-enterprise common ownership can significantly reduce the efficiency of resource allocation.Based on the above results,this paper summarizes the influence mechanism of bankenterprise common ownership on Chinese credit market.Overall,the bankenterprise common shareholders mainly play the role of insider trading facilitators,which reduces market efficiency.However,the impact mechanism of bankenterprise common ownership on the credit market will change depending on the size of the company: for large-scale companies,bank-enterprise common shareholders mainly serve as a bridge for communication between banks and companies,reducing information asymmetry and improving market efficiency;for small-scale companies,bank-enterprise common shareholders seek their own interests at the expense of other bank shareholders,reducing market efficiency.This paper also studies the impact of bank-enterprise common ownership on the market response to loan announcements in China,and examines the impact of bankenterprise common ownership on the company’s expected rate of return.The empirical results show that the market efficiency of Chinese capital market has been significantly improved,but the information of bank-enterprise common ownership has not been timely and fully released in the market,and the market efficiency of Chinese capital market needs to be improved.In addition,this paper also finds that bank-enterprise common ownership leads to information leakage,which is profitable for insiders.This paper mainly has the following three theoretical contributions:(1)This paper takes the Chinese market as the research object pretty early,and examines the impact of common ownership in Chinese credit market.Foreign researches on common ownership mainly take the product market as the object,while the research object of bank-enterprise common ownership is the credit market,and the nature of the two is different.Secondly,most of the empirical studies on common ownership focus only on one industry(such as the pharmaceutical industry,the instant cereal industry,the aviation industry,etc.),and the relevant research conclusions are difficult to be widely promoted due to the differences between industries.The study on bank-enterprise common ownership expands the industry scope of the sample,making relevant research conclusions universal to a certain extent.Finally,China is mainly based on indirect financing,and Chinese credit market is quite different from that of foreign countries,so the research conclusions about bank-enterprise common ownership can make more reasonable suggestions for financial supervision.(2)This paper expands and enriches the related research on the impact of bankenterprise common ownership.Some literatures on common ownership in the same industry use the event study method to analyze the impact of common ownership on the company’s future expected rate of return,but there is no literature on bankenterprise common ownership that conducts relevant research.The current research on bank-enterprise common ownership mainly examines the impact of bankenterprise common ownership on the credit market,and there is no literature examining the impact of bank-enterprise common ownership on the capital market.Using the event study method to study the relationship between the bank-enterprise common ownership and the market reaction of loan announcements,this paper examines the impact of bank-enterprise common ownership on the company’s future expected rate of return,and thus examines the market efficiency of Chinese capital market,and finds the problem of information leakage in Chinese capital market.In addition,this paper also supplements the relevant literature on the impact of institutional investors on holding companies and the impact of bank-enterprise relationship on companies.Most of the current literature on the influence of institutional investors on holding companies is to compare the changes of a company before and after being held by institutions.This paper studies the impact of institutional investors on corporate credit and performance when they hold both banks and companies,and supplements the literature on the impact of institutional investors on companies when they hold multiple related companies at the same time.At present,most of the literature on bank-enterprise relationship use the perspectives of loan duration,bank-enterprise distance,company-holding bank,bank-holding companies,and bank-enterprise cross-shareholding as indicators of the degree of bank-enterprise relationship.This paper measures the degree of bank-enterprise relationship from the perspective of the degree of bank-enterprise common ownership,thus expanding the measurement of bank-enterprise relationship.(3)Based on the first-hand data,this paper adopts a more reliable method,and draws some new conclusions on the impact of bank-enterprise common ownership on Chinese credit market.This paper analyzes the impact of bank-enterprise common ownership on credit availability by constructing a corporate loan model with bank-enterprise common ownership.This paper obtains the data of the top ten shareholders of the 208 banks in the sample from 2017 to 2018 by consulting the annual reports and manually collecting them and matched them with the data of the top ten shareholders of the company,which overcomes the problem of lack of core data in the literature research.This paper also constructs unique instrumental variables,and empirically analyzes the impact of bank-enterprise common ownership on the performance of companies of different sizes by using a linear probability model,and finds a special phenomenon in Chinese credit market: bankenterprise common shareholders play diametrically opposed roles in companies of all sizes.The empirical results are quite different from those of empirical studies based on credit markets in developed countries.This paper gives policy suggestions from three aspects: strengthening external supervision and system construction,optimizing the company’s internal governance,and improving investor education.