Do Banks Extract Informational Rents Through Collateral?

62 Pages Posted: 19 Oct 2015

See all articles by Bing Xu

Bing Xu

Universidad Carlos III de Madrid

Honglin Wang

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Adrian Rixtel

Bank for International Settlements (BIS)

Multiple version iconThere are 4 versions of this paper

Date Written: October 2015

Abstract

This paper investigates if informational monopolies resulting from relationship lending and bank market concentration allow for rent extraction through collateral. Our identification strategy hinges on the notion that informational equalization shocks (such as equity IPOs) erode rent seeking opportunities, while competing theories do not rely on information asymmetries among lenders. Using a unique hand-collected database of 9,288 bank loans obtained by 649 listed Chinese firms, we find that collateral incidence is positively associated with relationship intensity and bank market concentration, while this effect is moderated for post-IPO loans. These results are obtained controlling for a large number of loan and firm characteristics, monetary policy variables and regional macroeconomic characteristics. We also demonstrate important cross-sectional variation among borrowing firms: rent extraction through collateral is significantly less pronounced for less risky firms. Our results hold for a battery of robustness tests, both included in the paper and in an Internet appendix (available upon request). Furthermore, we provide new evidence on the determinants of collateral in Chinese bank lending markets.

Keywords: Informational rents, collateral, relationship lending, market structure, IPOs, China

JEL Classification: G21, L11

Suggested Citation

Xu, Bing and Wang, Honglin and Rixtel, Adrian, Do Banks Extract Informational Rents Through Collateral? (October 2015). BIS Working Paper No. 522. Available at SSRN: https://ssrn.com/abstract=2675144

Bing Xu (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Honglin Wang

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

3 Garden Road, 8th Floor
Hong Kong
China

Adrian Rixtel

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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