Corporate Governance and Collateral Requirements: Evidence from China's Listed Firms

Abstract

Using a sample of China’s listed firms during 2007-2009, we examine the effect of internal and external corporate governance mechanisms on collateral requirements of bank loans. We find that governance of foreign shareholders, other large shareholders and the two-tier boards affect collateral requirements. In addition, our result indicates the effect of internal governance on collateral requirements dependents on the type of dominant shareholder. We also find evidence that higher-quality institutions help to reduce the collateral requirements. Overall, our research takes the governance issues into the general determinants of collateral which has important policy implications for governance reform in China’s ever-growing markets.

Keywords: Collateral; Corporate governance; Marketisation

JEL Classification: G21; G34