Decentralization facilitates more efficient use of local information but also can lead to agency problems and commitment failures. This paper develops simple models of a two-tier hierarchy (the center vs. the local) to study the optimal division of lending authority between central and local...

Decentralization can complement market liberalization by strengthening incentives of agents to respond to market signals. However, in China banks centralized lending authority following financial reforms in the mid-1990s. We present a new theory of financial decentralization in which...

Summary Using panel data collected in 2005, we evaluate how bank size, discretion over credit, incentive schemes, competition, and the institutional environment affect lending to small- and medium-sized enterprises in China. We deal with the endogeneity problem using instrumental variables, and...

Purpose – This paper seeks to understand the evolution of financial intermediation in the course of China's economic transition. Design/methodology/approach – The research is based on a unique data set collected by the authors and other collaborators from a 1998 survey of financial...