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Digital Technology, Legal Reforms, and Bank Lending

Author

Listed:
  • Huang, Yi
  • Peng, Yuchao
  • Sun, Yangfan
  • Yeung, Bernard
  • Wang, Nanxuan

Abstract

The introduction of online collateral auctions through legal reform has established a more efficient bankruptcy resolution mechanism. This technology-driven change has enhanced the ex-ante value of secured loans, influencing the supply, demand, and composition of bank lending. Using granular loan-level data and staggered Difference-in-Differences (DiD) estimations, we find a significant shift from unsecured to secured loans, particularly among private firms with greater fixed assets, stronger credit ratings, and higher reliance on external financing. Meanwhile, interest rates on unsecured loans rise, while those on secured loans remain unchanged. The effects are more pronounced in bank branches facing higher competitive pressures, where lenders expand credit to capitalize on the increased value of secured loans. Following the reform, banks increased secured lending, improved risk-adjusted interest earnings, and attracted more private-sector firms.

Suggested Citation

  • Huang, Yi & Peng, Yuchao & Sun, Yangfan & Yeung, Bernard & Wang, Nanxuan, 2025. "Digital Technology, Legal Reforms, and Bank Lending," CEPR Discussion Papers 20652, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20652
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    File URL: https://cepr.org/publications/DP20652
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    More about this item

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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