Do banks extract informational rents through collateral?

Bing Xu (), Adrian Rixtel () and Honglin Wang ()
Additional contact information
Honglin Wang: Hong Kong Monetary Authority

No 1616, Working Papers from Banco de España

Abstract: The use of collateral is one of the defining characteristics of loan contracts. This paper investigates if relationship lending and market concentration allow for informational rent extraction through collateral. We use equity IPO data as informational shocks that erode rent-seeking opportunities. Using a new loan-level database for China, we find that collateral incidence increases with relationship intensity and banking market concentration for loans obtained pre-IPO, while this effect is more moderate post-IPO. We also show that the degree of rent extraction declines for lower-risk firms post-IPO, while it increases for higher-risk firms. These results are not driven by differences or changes in firm-specific financial risks. To our knowledge, our paper is the first to investigate the determinants of collateral for China using loan-level data.

Keywords: Informational rents; collateral; relationship lending; market structure; IPOs; China (search for similar items in EconPapers)
JEL-codes: G21 L11 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2016-08
New Economics Papers: this item is included in nep-ban and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /16/Fich/dt1616e.pdf First version, August 2016 (application/pdf)

Related works:
Working Paper: Do banks extract informational rents through collateral? (2016)
Working Paper: Do banks extract informational rents through collateral? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1616

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