Do Banks Extract Informational Rents Through Collateral?

64 Pages Posted: 13 Aug 2016

See all articles by Bing Xu

Bing Xu

Universidad Carlos III de Madrid

Adrian A. R. J. M. van Rixtel

European Central Bank (ECB)

Honglin Wang

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

Multiple version iconThere are 4 versions of this paper

Date Written: August 10, 2016

Abstract

The use of collateral is one of the defining characteristics of loan contracts. This paper investigates if relationship lending and market concentration allow for informational rent extraction through collateral. We use equity IPO data as informational shocks that erode rent-seeking opportunities. Using a new loan-level database for China, we find that collateral incidence increases with relationship intensity and banking market concentration for loans obtained pre-IPO, while this effect is more moderate post-IPO. We also show that the degree of rent extraction declines for lower-risk firms post-IPO, while it increases for higher-risk firms. These results are not driven by differences or changes in firm-specific financial risks. To our knowledge, our paper is the first to investigate the determinants of collateral for China using loan-level data.

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

JEL Classification: G21, L11

Suggested Citation

Xu, Bing and van Rixtel, Adrian A.R.J.M. and Wang, Honglin, Do Banks Extract Informational Rents Through Collateral? (August 10, 2016). Banco de Espana Working Paper No. 1616. Available at SSRN: https://ssrn.com/abstract=2820962 or http://dx.doi.org/10.2139/ssrn.2820962

Bing Xu (Contact Author)

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Adrian A.R.J.M. van Rixtel

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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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