Banking Competition, Regional Credit Differences, And Firm Financing Behavior

Political, economic and other factors make the differences in financial developmentin China gradually, especially regional development strategies and financial supportto the adjustment after Reform and opening up. In particular, Chinese economicsystem from a planned economy to a market economy causes the national economicsystem, resource allocation and economic development strategies changed, and theprocess of regional market differences as well. East market has created an enormousfinancial demand with its process of rapid and good financial environment objectively.In contrast, because of a low level of economic development in central and westernregions, the degree of market is weak, the central and western regions have a lowerutilization of financial resources. As the financial assets have a certain degree ofliquidity, capital seeking for profit makes money from central and western regions toeastern regions, showing a gap gradually expand.As China continues to open up of the banking sector, the competition will becompetition accelerated among commercial banks. And this competition is not onlyreflected in the competition between foreign banks and reflected in Chinese banks.Competition between the banking will also benefit from a simple way to grabcustomers turn to product competition and price competition. With the interest ratemarket, the price war among banks will be more clarified; foreign banks advancedmanagement and advanced products will enhance their competitive level. Then wewill focus on the business can benefit from competition among banks, economicallybackward areas of corporate credit availability can be improved.The monopoly position of national commercial banks and the disequilibrium ofregional finance development bring out differences in credit financing among firmsform different regions. The differences come forth two ways: the ratio of credit loansto total capital, and interest rate of credit loan. Banking competition can improvecredit behavior of commercial banks to a certain extent, but there are few researchesthat can give a convincing conclusion about the effect of competition extent ofbanking on regional credit financing. In this article, based on the data of2002-2009 financial reports of A-share and B-share listed companies, we use empirical studymethods to analyze the effect of competition extent of banking on regional creditfinancing.We find following conclusions: the credit financing ratio of companies fromEastern region is evidently higher than that of companies from Middle and Westernregion, and the interest rates of bank loan charged on companies from Eastern regionare evidently higher than that of companies from Middle and Western region. Withthe development of Chinese banking revolution, the banking competition extentgrows high, and this leads to the shrinkage of regional credit differences. Thus, wepropose that our finance department relax the limits on banking entrance, acceleratethe course of interest rates liberalization timely, increase the extent of bankingcompetition, thus realizing the equilibrium of regional credit financing.