Digital Technology, Legal Reforms, and Bank Lending

Yi Huang, Yuchao Peng, Yangfan Sun, Bernard Yeung and Nanxuan Wang

No 20652, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The introduction of online collateral auctions through legal reform has established a more efficient bankruptcy resolution mechanism. This technology-driven change has enhanced the ex-ante value of secured loans, influencing the supply, demand, and composition of bank lending. Using granular loan-level data and staggered Difference-in-Differences (DiD) estimations, we find a significant shift from unsecured to secured loans, particularly among private firms with greater fixed assets, stronger credit ratings, and higher reliance on external financing. Meanwhile, interest rates on unsecured loans rise, while those on secured loans remain unchanged. The effects are more pronounced in bank branches facing higher competitive pressures, where lenders expand credit to capitalize on the increased value of secured loans. Following the reform, banks increased secured lending, improved risk-adjusted interest earnings, and attracted more private-sector firms.

JEL-codes: G21 G33 K42 O33 (search for similar items in EconPapers)
Date: 2025-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP20652 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:20652

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP20652

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().