Summary:
The reduction of excess production capacity (the improvement of capacity utilization, or CU) is one of the five goals of supply-side structural reform. As the main goal, financial reform is fundamental to the structural adjustment of the real economy and thus its further development and improvement. However, China's general economic development is faced with an imbalance between the financial sector and the real economy. Much of financial capital has not entered the real economy but circulates or remains idle within the financial system because the preference for financialization by non-financial enterprises reduces their investment levels in their main areas of business when "crowding out" effect of financialization is greater than the "reservoir" effect. We find that firms with low levels of total factor productivity (TFP) and CU gain less profits from their main businesses, have lower opportunity costs when issuing entrusted loans, and thus have greater incentives to issue entrusted loans. TFP and CU are therefore important determinants of the issuance of entrusted loans. We first construct a theoretical model to explore how enterprises with different levels of TFP and CU choose the optimal entrusted loan amount when faced with specific amounts of physical and financial capital. In this model, the entrusted loan amount is expressed as a function of its TFP or CU. The income derived from financial investment is divided into interest income based on speculation and “value-added income” based on investment purpose. The model shows that the entrusted loan amount issued by enterprises is a monotonously decreasing function of the TFP and CU of enterprises, regardless of whether it is driven purely by financial profits or by real economic investments. We investigate the relationship between TFP, CU, and financial resource allocation using a manually collected dataset of A-share listed companies on the Shanghai and Shenzhen stock markets that issued entrusted loans between 2007 and 2015. We calculate TFP following Olley and Pakes (1996), Levinsohn and Petrin (2003), and Ackerberg et al. (2006). For CU, we first use fixed asset turnover as a proxy, and then use the production function method to construct two more proxies: the ratio of the unobservable amount of capital that an enterprise actually puts into production to the observable potential amount of capital it could put in, and the actual output divided by the theoretical maximum output. The empirical results show that after controlling for other firm characteristics related to entrusted loan issuance, firms with lower TFP and CU are more likely to issue entrusted loans and to issue more, which suggests that such firms are more likely to engage in financial business activities. From further analysis we find that the relationship is more pronounced when the borrowing and lending firms are related parties and when the lending firm has political connections. Finally, to control for endogeneity, we use environmental regulation intensity and the proportion of technical independent directors as the instrumental variables for TFP and CU, respectively, and estimate the models using the 2SLS method. Our results still hold. This study makes three main contributions to the literature. First, we further reveal the relationship between enterprise productivity difference, overcapacity, and entrusted loans. Second, we establish a theoretical model to demonstrate the negative correlations between TFP, CU, and entrusted loan amount. Third, we manually collect entrusted loan data and conduct a comprehensive empirical analysis using various measures of TFP and CU from the perspectives of probability and the amount of entrusted loan issuance, and explicitly control for endogeneity. In conclusion, entrusted loans have both positive and negative effects on the economy, and can be either a rational choice for enterprises or speculative. Governments should not only guide the direction of flow of entrusted loans but also closely supervise the motives behind them. Further reform of the financial system and increased support for the real economy are the most important factors. Our focus is mainly on the lenders of entrusted loans, but further research from the perspective of borrowers could help explain the total utility generated by entrusted loans. The pricing of entrusted loans, i.e., the interest rate, reflects the opportunity cost of capital. Therfore relationship between TFP, CU, and entrusted loan interest rates is also a topic worthy of further study.
公衍磊, 邓辛, 杨金强. 全要素生产率、产能利用率与企业金融资源配置——基于中国上市企业委托贷款公告数据的经验分析[J]. 金融研究, 2020, 481(7): 57-74.
GONG Yanlei, DENG Xin, YANG Jinqiang. Total Factor Productivity, Capacity Utilization, and Enterprise Financial Resources Allocation: Evidence from Entrusted Loans. Journal of Financial Research, 2020, 481(7): 57-74.
Ackerberg, Daniel A., K. Caves, and G. Frazer. 2006. “Structural Identification of Production Functions”, MPRA Paper, 88(453): 411～425.
[19]
Allen, F., Y. Qian, G. Tu, and F. Yu. 2019. “Entrusted Loans: A Close Look at China's Shadow Banking System”, Journal of Financial Economics, 133 (1): 18～41.
[20]
Chen, K., J. Ren, and T. Zha. 2016. “What We Learn from China's Rising Shadow Banking: Exploring the Nexus of Monetary Tightening and Banks' Role in Entrusted Lending”, NBER Working Paper, No. W21890.
[21]
Cull, R., W. Li, B. Sun, and Lixin C. Xu. 2015. “Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms” ,Journal of Corporate Finance, 32: 271～294.
[22]
He, Q., L. Lu, and S. Ongena. 2016. “Who Gains from Credit Granted between Firms？ Evidence from Inter-Corporate Loan Announcements Made in China”, CFS Working Paper, No. 529.
[23]
Lancaster, T.. 2000. “The Incidental Parameter Problem since 1948”, Journal of Econometrics, 95 (2): 391～413.
[24]
Levinsohn, James A., and A. Petrin. 2003. “Estimating Production Functions Using Inputs to Control for Unobservables”, Review of Economic Studies, 70 (2): 317～342.
[25]
Li, X., and Jyh H. Lin. 2016. “Shadow-Banking Entrusted Loan Management, Deposit Insurance Premium, and Capital Regulation” ,International Review of Economics & Finance, 41: 98～109.
[26]
Liu,Y.. 2017. “An Equilibrium Model of Entrusted Loans”, NBER Working Paper, No. 3081855.
[27]
Olley, George S., and A. Pakes. 1996. “The Dynamics of Productivity in the Telecommunications Equipment Industry” ,Econometrica, 64 (6): 1263～1297.
[28]
Sun, Q.. 2018. “The Real Effects of Entrusted Lending” ,Working Paper, Shanghai University of Finance and Economics.
[29]
Yu, Y., Y. Lee, and Robert C. W. Fok. 2015. “Speculative Motive for Holding Cash and High-Interest Entrusted Loans”, NBER Working Paper, No.2649970.
