Lending to Private Firms: Evidence from China on the Role of Firm Openness and Bribery

This paper investigates the effects of firm openness and bribery on bank lending decisions. Using World Bank data covering 1869 private firms, we find evidence that paying bribes helps firms obtain bank credit in China. But after adding firm openness into the analysis, the significance of the effect of bribery on banking finance disappears. Instead, we find that banks in China prefer to allocate loans to firms with a higher level of openness. This finding holds true only for large firms, manufacturing firms, and firms located in regions with good banking development. We also find that private firms with greater government assistance are more likely to obtain bank loans, and more credit overall.