In China, state-owned companies actually get more scared and play it safer when they borrow from state-owned banks.
March 24, 2026
Original Paper
Common State Ownership, Bank Monitoring and Borrower Risk-Taking in China
SSRN · 6461027
The Takeaway
Common wisdom suggests that 'zombie' firms with government ties take reckless risks because they expect bailouts. This study finds the opposite: when the bank and borrower share a government owner, insiders avoid even profitable risks to play it safe, leading to stagnation rather than reckless expansion.
From the abstract
This study examines how common state ownership—where banks and borrowers share the same government owner—and bank monitoring influence borrower risk-taking in China. Using a unique hand-collected dataset of bank loans and ownership structures, we find that common state ownership is significantly associated with reduced borrower risk-taking. This effect is shaped by bank monitoring effectiveness, proxied by loan intensity, the guaranteed loan ratio, and the share of short-term loans. The negative