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Do banks extract informational rents through collateral?

Author

Listed:
  • Bing Xu

    (Universidad Carlos III, Madrid)

  • Adrian van Rixtel

    (Banco de España)

  • Honglin Wang

    (Hong Kong Monetary Authority)

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.

Suggested Citation

  • Bing Xu & Adrian van Rixtel & Honglin Wang, 2016. "Do banks extract informational rents through collateral?," Working Papers 1616, Banco de España.
    • Handle: RePEc:bde:wpaper:1616
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    Cited by:

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    3. Xu, Bing, 2019. "Permissible collateral and access to finance: Evidence from a quasi-natural experiment," China Economic Review, Elsevier, vol. 54(C), pages 237-255.
    4. Gareth Anderson & Saleem Bahaj & Matthieu Chavaz & Angus Foulis & Gabor Pinter, 2023. "Lending Relationships and the Collateral Channel," Review of Finance, European Finance Association, vol. 27(3), pages 851-887.
    5. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España.
    6. Xu, Bing, 2018. "Permissible collateral and access to finance: Evidence from a quasi-natural experiment," BOFIT Discussion Papers 3/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. Dmytro Osiichuk & Paweł Wnuczak, 2023. "Do Corporate Consolidations Affect the Competitive Positioning of Non-Financial Firms in China?," SAGE Open, , vol. 13(4), pages 21582440231, December.
    8. repec:zbw:bofitp:2018_003 is not listed on IDEAS
    9. Fengyan Yu & Qi Liang & Wei Wang, 2020. "State ownership and banks’ information rents: Evidence from China," The Financial Review, Eastern Finance Association, vol. 55(2), pages 277-306, May.

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    More about this item

    Keywords

    Informational rents; collateral; relationship lending; market structure; IPOs; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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