How does bank competition affect trade-mode transformation? Evidence from Chinese export enterprises*

This study investigates the effect of banking competition on the transformation of Chinese firms' export trade mode. We use matched data from the Chinese Industrial Enterprise Database and the Chinese Customs Trade Statistics between 2007 and 2013 to measure export firm trade-mode, and apply the number of commercial bank branches at the prefecture level to gauge bank competitiveness. With a large firm-level dataset, we find that bank competition affects a company's transition from processing mode to ordinary trade. The validity of our findings is confirmed through several robustness tests. Furthermore, we examine the underlying processes through which bank competition influences trade-mode transformation by means of firms' financial constraints, the regional marketization process and banking structural characteristics. Finally, we investigate the heterogeneity conditions and find that firms with distinct ownership structures and in different geographical locations demonstrate diverse performances in the aforementioned connection. The empirical findings provide crucial evidence to enhance the understanding of the relationship between banking institutions and company exports in emerging economies.