银行竞争提高了企业投资水平和资源配置效率吗？——基于分支机构空间分布的研究

Journal of Financial Research

2021, Vol. 487

Issue (1): 111-130 DOI:

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Does Bank Competition Increase Firm Investment and Investment Efficiency？Evidence Based on the Geographical Distribution of Bank Branches

LI Zhisheng, JIN Ling

School of Finance, Zhongnan University of Economics and Law

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Abstract The five largest state-owned commercial banks dominated China's banking market before 2006, with more than 65% of the total lending business. This market was strictly regulated, and joint equity banks and local commercial banks were hard to establish branches outside the headquarter locations. Since the deregulations of 2006 and 2009, the China Banking Regulatory Commission has gradually relaxed the entry barriers for banks. The market share of joint equity banks and local commercial banks in lending thus increased from 13.10% in 2005 to 32.80% in 2017, and the proportion of their branches increased from 22.56% in 2005 to 41.87% in 2017. Bank deregulation also has major effects on the geographical distribution of branches, encouraging competition and enhancing banks' ability to support economic development.
Previous research demonstrates that competition significantly enhances the ability of firms to obtain loans from banks and the efficiency of credit resource allocation. Due to the dominant role of the bank sector in China's financial system, bank loans are the most important source of the capital that fuels firm investment and local economic growth. Statistics from the People's Bank of China indicate that bank loans accounted for 71.19% of the social financing increment in 2017. Thus, changes in the geographical distribution of bank branches and the level of competition will have a major impact on firm investment and subsequent economic performance.
In this paper, we use the number of bank branches within a certain radius (i.e., 5, 10, or 20 km) around firms to measure the level of bank competition based on the address information of banks and firm headquarters. Using Chinese Industry Census data from 2001 to 2012, we investigate how changes in the geographical distribution and competition of banks affect firm investment and investment efficiency, and find that the number of bank branches around firm has a significantly positive effect. These findings are robust to a series of alternative empirical designs, such as changing the measures of bank competition ,firm investment and investment efficiency, controlling for regional economic heterogeneity and potential reverse causality, and using the deregulation in 2009 as an exogenous shock. We also find that the positive impact of bank competition on investment efficiency is greater for a sample of underinvested and non-state-owned firms. Bank competition is also found to improve firms' investment efficiency, mainly by alleviating financial constraints and reducing agency conflicts.
This study makes various contributions to the literature. First, although research considers the relationship between bank competition and firms' ability to obtain loans from banks, few studies focus on the effect of bank competition on how firms utilize bank loans and their investment efficiency. Second, instead of the traditional bank competition indicators (i.e., concentration ratios or the number of banks in specific regions), we use the number of branches around a firm to evaluate its bank competition environment, which can effectively address the heterogeneity in competition faced by different firms in the same region. Third, although the influence of geographical distribution on macro-economic growth and bank performance is empirically investigated, few studies address the effect on micro-firms. Thus, we contribute to the literature by investigating the impact of bank branch geographical distribution on firm investment and investment efficiency using a large-scale micro sample.
Our work also has important policy implications. China is attempting to develop a market-oriented banking system with more accessible, more affordable, and higher-quality financial services. We find that the increase in bank branch coverage and bank competition has a positive impact on firm investment and investment efficiency. These findings provide empirical support for the marketization reform of China's banking industry and the development of inclusive finance. When conducting supply-side structural reform in the financial sector, China should continue to strengthen market mechanisms and institutions in the banking industry and facilitate high-quality development through market competition.

Key words： Bank Competition Geographical Distribution of Bank Branches Firm Investment Investment Efficiency

Received: 19 August 2019 Published: 02 February 2021

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LI Zhisheng,JIN Ling. Does Bank Competition Increase Firm Investment and Investment Efficiency？Evidence Based on the Geographical Distribution of Bank Branches[J]. Journal of Financial Research, 2021, 487(1): 111-130.

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http://www.jryj.org.cn/EN/ OR http://www.jryj.org.cn/EN/Y2021/V487/I1/111

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