Using detailed bank lending data from Chinese listed firms to identify bank-financing linkage, we find strong evidence of return predictability across bank-financing-linked firms. A long-short portfolio formed on the past returns of linked firms can generate risked-adjusted returns of 5.5%–7.8% annually for focal firms. This cross-firm predictability is distinct from momentum based on industry, geography, or analyst coverage. It is more pronounced for focal firms that receive lower investor attention, exhibit higher arbitrage cost, or have closer relationships with banks. Overall, our findings suggest a unique channel of stock market spillover, where the bank-financing linkage among firms, coupled with limited investor attention, leads to sluggish information diffusion.

Hosted by: Prof. Lijian Sun  

Contact: Ding Qi

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