Three essays on Chinese banking and corporate finance

Over the past two decades, the Chinese banking industry has undergone a series of reforms and also played a central role in the disbursement of the 4 trillion RMB stimulus package of 2008, raising concerns about Chinese shadow banking. We offer three studies to address critical questions on the evolution of the Chinese banking industry: (1) Did the ownership reforms in the banking sector improve the efficiency of the Chinese economy and from what perspective? (2) After the reforms, why and how did shadow banking emerge in China? (3) Can Chinese banks play a regulatory role to prevent shadow banking to the same extent as banks in developed economies? To answer these questions, in Chapter 1, we examine how stronger bank-firm relationships mitigate shadow-banking activity among borrowing firms through the implementation of stricter loan contracts and the improvement of corporate governance. In Chapter 2, we model the endogenous generation of shadow lending after the implementation of the 2008 stimulus package and demonstrate how large firms become shadow creditors of credit-rationed small firms. Finally, in Chapter 3, we study the impact of the ownership reform of three of China's largest state-owned banks and demonstrate an improvement in credit allocation