Decentralization can complement market liberalization by strengthening incentives of agents to exploit local information in response to market signals. In China, however, banks centralized lending authority following financial reforms in the mid-1990s. We offer a new theory of financial decentralization in which centralization provides a credible commitment not to refinance bad projects by reducing available information. Using data from Chinese rural financial institutions, we empirically ass...Expand abstract
- Publication status:
- Peer review status:
- Peer reviewed
- Accepted Manuscript
- Copyright holder:
- Elsevier B.V.
- Copyright date:
- © 2007. Published by Elsevier B.V. An earlier draft of this paper was titled, “Decentralization in Financial Institutions: Theory and Evidence from China.” NOTICE: this is the author's version of a work that was accepted for publication in Journal of Economic Behavior & Organization. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Behavior & Organization, 66, 3-4, (June 2008) DOI#10.1016/j.jebo.2006.06.013
Refinancing and Decentralization: Evidence from China.
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