Does high-speed rail boost local bank performance? Evidence from China

Abstract

This paper investigates whether and how high-speed rail (HSR) construction affects local bank performance. Using the difference-in-differences method, we find that the city commercial banks (CCBs) significantly experience an overall decrease in ROA after HSR is introduced in their headquarters cities. Mechanism analyses suggests that the HSR-driven city connectivity imposes the local CCBs on the intensified banking competition related to freer capital flows, and improves bank governance associated with information flows. HSR exerts more pronounced impacts under higher financial liberalization. The findings are robust to the endogeneity concerns. We highlight the indispensable role of transport infrastructure in banking development.