2019-08-23

Speaker: Wentao Gu, Ph.D., Zhejiang Gongshang University, China and Indiana University

Title: What Causes the Influence of Bank Channel towards Corporate Investment: Liquidity or Economic Policy Uncertainty?

Based on the bank-led financial system and special financial environment in China, in order to obtain funds for investment activities, most of the companies rely on external financing, especially on bank credit. This paper examines whether the causes of bank credit channel influence are liquidity, economic policy uncertainty or both, through an empirical study from a sample of 620 companies on the Shanghai and Shenzhen A-share mainboards. The study finds that economic policy uncertainty significantly inhibits corporate investment expenditures through bank credit channels. At the same time, the bank liquidity crisis caused by non-economic policy uncertainty affects corporate investment differently due to different government actions. The empirical results by the threshold panel models further show that the effects of uncertainty and liquidity on the investment are different with respect for different industries, ownership structures, growth opportunities, and financing constraints.

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