Will Bank Branch Expansion Improve the Real Economy? Based on the Spatial Distribution of Bank Branches at the Firm Level

Long Zhineng; Li Wanli

doi:doi:10.16538/j.cnki.fem.20240120.203

Summary

Deepening the reform of the financial system and enhancing the ability of financial services to affect the real economy are currently the focus of attention. In the context of the downward pressure of China’s economy, from the competitive perspectives of “moistening the real” and “intensifying the virtual”, this paper systematically examines the effect of bank branch expansion triggered by the deregulation of bank access on firms “shifting from real to virtual”. The results show that bank branch expansion significantly exacerbates corporate financialization, and the above effect is more obvious in private firms and small firms. Mechanism analysis shows that when the profit margin of firms’ main business is smaller, the promoting effect of bank branch expansion on corporate financialization is stronger. Further distinguishing the investment structure of financial assets, the study finds that bank branch expansion has a stronger promoting effect on investment in long-term financial assets, which supports the profit-seeking hypothesis. In addition, it is found that investing acquired credit funds in financial assets squeezes out industrial investment, resulting in the failure to effectively promote the development of the real economy. This paper provides micro-empirical evidence to assess the impact of bank access deregulation on economic development, and provides policy references to deepen the financial system reform and guide funds to effectively support industrial development.