Do Banks Extract Informational Rents Through Collateral?

HKIMR Working Paper No.01/2016

60 Pages Posted: 26 Jan 2016

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: January 24, 2016

Abstract

This paper investigates if relationship lending and bank market concentration permit informational rent extraction through collateral. We use equity IPOs as informational shocks that erode rent seeking opportunities. Using unique loan data from China, we find collateral incidence increases with relationship intensity and bank market concentration for pre-IPO loans, while these effects are moderated post-IPO. We further discover after an IPO, rent extraction is moderated for safe firms but intensified for risky firms. These results are not driven by differences or changes in financial risks. Ours is the first investigation on collateral determinants for China with loan-level data.

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? (January 24, 2016). HKIMR Working Paper No.01/2016. Available at SSRN: https://ssrn.com/abstract=2721480 or http://dx.doi.org/10.2139/ssrn.2721480

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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