How do big customers influence bank loans in China? The role of state ownership and political connections

Firms with big customers are associated with not only high operational efficiency but also high operational risks. We study the effect of big customers on various aspects of bank loan contracts using a manually collected contract-level dataset from China over the period of 2001-2016. We find that, big customers help firms obtain lower borrowing interest rates, longer loan duration, and larger loan amounts, though this is accompanied by more restrictive borrowing conditions. We further find that state ownership and political connections are important considerations when banks make loan decisions to firms with big customers. Overall, our results show how benefits and costs of big customers are evaluated by banks and priced into bank loan contract terms.