Are China's Financial Reforms Leaving the Poor Behind - Harvard ...

anches. Note that our sample size drops to 57 because of missing observations. Thesign on the variable is as predicted, but the coefficient is not measured with muchprecision and is statistically insignificant. The remaining coefficients are similar inmagnitude to those reported in columns 6 and column7.In columns 1-4, we analyze the effect of governance structures present in 1994 onchange in non-performing loans between 1994 and 1997. We also include townshipincome in 1994, and in column 4, add the level of non-performing loans in 1994. Limitedinformation on governance in 1994 restricts our attention to a much smaller set ofvariables than used above, and to a relatively small sample of RCC and ABC branches.The results are informative however. First, governance seems to matter: The increase innon-performing loans is smaller in townships in which government influence is less,there is more frequent reporting to higher level county branches, and managers have morediscretion in extending new loans. Second, the increase is less in townships with higherincomes. Since the change in non-performing loans is not correlated with the growth inour income measure (result not reported here) over the same period, one interpretation forthis result is that the income variable is picking up “unobserved” dimensions ofgovernance at the township level that are positively correlated with incomes. Third, wefind that the increase in non-performing loans over this three-year window is lower inbranches with a higher stock of non-performing loans of 1994. This may reflectadditional actions being taken by these branches to address the non-performing loanproblem. Note that the inclusion of the stock of non-performing loans in the regressiondoes not significantly affect the remaining coefficients.28