Government Intervention and Financial Development: An Empirical Study on the Impacts of Government Regulations on Local Financial Markets in China

Authors: Xuanyi Nie*, Harvard University Graduate School of Design, Haobin Fan, Shanghai Academy of Social Sciences
Topics: China, Regional Geography, Economic Geography
Keywords: government, regulation, financial, geography, China
Session Type: Virtual Paper
Day: 4/10/2021
Start / End Time: 6:25 AM / 7:40 AM
Room: Virtual 36
Presentation File: No File Uploaded

Financial market plays an irreplaceable role in the contemporary business society as the development of almost all enterprises is affected by local financial policies. Literature has widely discussed that financial activities and investments often flow into ‘global’ cities such as NYC and London. In China, while enterprise branches and investments prefer financially more developed regions such as Beijing and Shanghai, creating a hierarchy in financial geography, literature also suggest that inter-local government competition would encourage local governments of the less developed regions to mitigate for this hierarchy. An often-neglected institutional force comes from local governments’ autonomy in composing regulatory policies. Yet current literature has not discussed the relationship between financial regulations and the development of financial market. This research therefore proposes to investigate the impacts of local financial regulations on the local financial market in China by posing the hypothesis that local governments with less developed financial market tend to ease their local financial regulatory policies to stimulate financial activities within their jurisdictions. This hypothesis will be tested by empirical analysis with provincial-level datasets measuring the access to commercial banking facilities, non-performing loans (NPL), and the types of penalties on listed companies. One specific case could be that a local government with less developed financial market would encourage commercial banks to lend more loans to invest in industrial projects which might lead to a high NPL ratio, and to reduce cash penalty on companies.

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