Does internal competition shape bank lending behavior? Evidence from a Chinese bank

Abstract Using unique proprietary branch-level lending data obtained from a Chinese national bank, this paper investigates when intra-bank competition intensifies, whether turf wars which arise among parallel credit departments and loan officers shape a bank's lending behavior. Our results show that at both the loan officer level and the credit department level, internal competition is associated with larger loan amounts and loan maturity. These results suggest that employees boost loan volume and establish longer lender-borrower relationships to gain competitive advantages in relative evaluations. We also find that branch presidents with government working experience facilitate the influence of internal competition on aggressive bank lending because they may be more likely to set up tournament incentive schemes for employees. Further results demonstrate that fierce external (inter-bank) competition moderates the association between internal competition and lending behavior.