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The determinants of high‐interest entrusted loans in China

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  • Yan Yu
  • Yi‐Tsung Lee
  • Robert C.W. Fok

Abstract

We examine the determinants of high‐interest entrusted loans in China from the perspective of corporate risk‐taking. The results of a baseline model illustrate that the propensity to offer high‐interest entrusted loans increases with loose monetary policies, corporate cash holdings and firm age, and it decreases with firm size and growth opportunity. These findings support the claim that firms offer high‐interest entrusted loans mainly for short‐term profits. Other determining factors include CEO behavior traits, market imperfections and the intensity of corporate governance. Specifically, market imperfections create an opportunity for risk‐taking while CEO behavior and the intensity of corporate governance affect a firm's tendency to take risk and engage in high‐interest entrusted loans.

Suggested Citation

  • Yan Yu & Yi‐Tsung Lee & Robert C.W. Fok, 2021. "The determinants of high‐interest entrusted loans in China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 405-430, January.
    • Handle: RePEc:bla:jbfnac:v:48:y:2021:i:1-2:p:405-430
    DOI: 10.1111/jbfa.12474
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