The implications of faster lending : loan processing time and corporate cash holdings
Pursiainen, Vesa; Sun, Hanwen; Wang, Qiong; Yang, Guochao (19.12.2025)
Numero
14/2025Julkaisija
Bank of Finland
2025
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe20251219122733Tiivistelmä
A unique natural experiment in China – the city-level staggered introduction of administrative approval centers (AAC) – reduces bank loan processing times by substantially speeding up the process of registering collateral without affecting credit decisions. Following the establishment of an AAC, firms significantly reduce their cash holdings. State-owned enterprises are less affected. Cash flow sensitivity of cash holdings decreases, as does the cash flow sensitivity of investment. The share of short-term debt increases, while inventory holdings and reliance on trade credit decrease. Defaults also decrease. These results suggest that timely access to credit has important implications for firms’ financial management.
Julkaisuhuomautus
NON-TECHNICAL SUMMARY
FOCUS
This paper examines whether the speed at which firms can obtain bank loans matters for their financial decisions, even when overall access to credit is unchanged. While existing research shows that access to finance is crucial for firms, much less is known about how delays and uncertainty in loan processing affect corporate behavior. The study focuses on a large institutional reform in China: the staggered introduction of Administrative Approval Centers (AACs), which substantially reduced the time required to register collateral for bank loans. Importantly, this reform streamlined administrative procedures without altering banks’ credit decisions. The central research question is therefore whether faster and more predictable access to bank credit influences firms’ liquidity management, financing choices, and operational outcomes.
CONTRIBUTION
The paper contributes to the literature on financial frictions and corporate finance by isolating the role of timeliness of credit, rather than credit availability itself. Using a natural experiment across Chinese cities and a long panel of listed firms from 1991 to 2017, the authors show how administrative efficiency in lending affects firm behavior. The study combines hand-collected data on collateral registration times with firm-level financial data, allowing for a clean identification of changes in loan processing speed. By focusing on a process-driven reform rather than technological innovation, the paper adds a novel institutional perspective to research on banking efficiency, precautionary cash holdings, capital structure, and trade credit.
FINDINGS
The results show that firms significantly reduce their cash holdings after AACs are introduced in their cities, consistent with a lower need for precautionary liquidity when credit can be accessed quickly. These effects are stronger for non-state-owned enterprises, smaller firms, and firms with more collateralizable assets. Faster lending also reduces firms’ dependence on internal cash flows: both cash holdings and investment become less sensitive to cash flow. While overall leverage changes little, firms shift toward greater use of short-term debt, reflecting lower refinancing risk. Inventory holdings and reliance on trade credit decline, and loan defaults become less likely. Overall, the findings suggest that reducing bureaucratic delays in lending can materially improve firms’ financial flexibility, with important implications for financial regulation and institutional reform.
FOCUS
This paper examines whether the speed at which firms can obtain bank loans matters for their financial decisions, even when overall access to credit is unchanged. While existing research shows that access to finance is crucial for firms, much less is known about how delays and uncertainty in loan processing affect corporate behavior. The study focuses on a large institutional reform in China: the staggered introduction of Administrative Approval Centers (AACs), which substantially reduced the time required to register collateral for bank loans. Importantly, this reform streamlined administrative procedures without altering banks’ credit decisions. The central research question is therefore whether faster and more predictable access to bank credit influences firms’ liquidity management, financing choices, and operational outcomes.
CONTRIBUTION
The paper contributes to the literature on financial frictions and corporate finance by isolating the role of timeliness of credit, rather than credit availability itself. Using a natural experiment across Chinese cities and a long panel of listed firms from 1991 to 2017, the authors show how administrative efficiency in lending affects firm behavior. The study combines hand-collected data on collateral registration times with firm-level financial data, allowing for a clean identification of changes in loan processing speed. By focusing on a process-driven reform rather than technological innovation, the paper adds a novel institutional perspective to research on banking efficiency, precautionary cash holdings, capital structure, and trade credit.
FINDINGS
The results show that firms significantly reduce their cash holdings after AACs are introduced in their cities, consistent with a lower need for precautionary liquidity when credit can be accessed quickly. These effects are stronger for non-state-owned enterprises, smaller firms, and firms with more collateralizable assets. Faster lending also reduces firms’ dependence on internal cash flows: both cash holdings and investment become less sensitive to cash flow. While overall leverage changes little, firms shift toward greater use of short-term debt, reflecting lower refinancing risk. Inventory holdings and reliance on trade credit decline, and loan defaults become less likely. Overall, the findings suggest that reducing bureaucratic delays in lending can materially improve firms’ financial flexibility, with important implications for financial regulation and institutional reform.