CAREER: Insider Lending and Economic Transition: Research and Teaching in Social Connections and Financial Market Development in China

Ohio State University Research Foundation -Do Not Use, Columbus OH

Investigators

Abstract

The objective of this CAREER project is to take advantage of China's economic transition to investigate the relationship between social connections, financial market development, and economic outcomes. Three separate studies are planned. The first examines the relationship between social connections and the structure of interorganizational financial exchange relations in the early stages of financial market development. The second study tests a structural explanation for firm productivity and financial performance during market emergence, predicting that firm behavior and outcomes will reflect the structure of exchange relations--particularly those grounded in personal connections--found in an emerging financial market. The third study examines the relationship between financial market development and aggregate economic growth, testing the idea that China's economic growth in the absence of a financial market has been possible due to the development of informal financial market substitutes based on strong social relations. For all of these projects, network data will be collected on the financial exchange relations and firm financial performance, along with additional interview data on state-owned specialty banks and the central bank, case study data on the process by which firms and banks make financial strategy decisions, and secondary data on growth and other financial market indicators. The education plan includes the development of two courses, one for graduate students and one for undergraduates, that also explore the extent to which the structure of relationships among actors is useful in explaining economic behavior.