Do Banks Extract Informational Rents Through Collateral?

55 Pages Posted: 4 Apr 2016

See all articles by Bing Xu

Bing Xu

Universidad Carlos III de Madrid

Adrian Van Rixtel

Banco de España - Department of International Economics & International Relations

Honglin Wang

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

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Date Written: 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: G21, L11, informational rents, collateral, relationship lending, market structure, IPOs, China

Suggested Citation

Xu, Bing and Rixtel, Adrian Van and Wang, Honglin, Do Banks Extract Informational Rents Through Collateral? (2016). BOFIT Discussion Paper No. 5/2016. Available at SSRN: https://ssrn.com/abstract=2756987

Bing Xu (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Adrian Van Rixtel

Banco de España - Department of International Economics & International Relations ( email )

Alcala 50
Madrid, 28014
Spain

Honglin Wang

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

3 Garden Road, 8th Floor
Hong Kong
China

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