How Does the Expansion of Urban Commercial Banks Affect Business Entry?—Empirical Evidence from Local Government Debt Financing

This study investigates the impact of urban commercial bank (UCB) expansion in China on business entry within regions and explores the underlying mechanisms. Using panel data from 288 Chinese cities between 2007 and 2020 and employing an instrumental variables approach, we analyze the causal effects of UCB expansion on business entry. The findings indicate that UCB expansion facilitates infrastructure development and enhances the business environment through local government bond financing, thereby influencing enterprise entry. Mechanism analysis reveals that UCB expansion significantly increases local government debt financing, which supports land development, improves water supply systems, and enhances transportation networks, ultimately lowering operational costs for businesses. Moreover, UCB expansion enhances government efficiency, transparency, and contract dispute resolution, although it does not significantly impact market competition fairness. Heterogeneity analysis shows that UCB expansion has a pronounced positive effect on business entry in sectors such as petrochemicals and building materials, while its impact on industries like pharmaceuticals and transportation equipment is limited. Regionally, the effects of UCB expansion are most significant in central and southern China, with relatively weaker effects observed in the eastern region. This research provides new causal evidence for the role of UCBs in local economies and offers theoretical support and policy recommendations for regional financial policy design.