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Foreign Bank Lending and Information Asymmetries in China

Author

Listed:
  • Pierre Pessarossi

    (LaRGE Research Center, Université de Strasbourg)

  • Christophe J. GODLEWSKI

    (LaRGE Research Center, Université de Strasbourg)

  • Laurent Weill

    (LaRGE Research Center, Université de Strasbourg)

Abstract

This paper considers whether information asymmetries affect the willingness of foreign banks to participate in syndicated loans to corporate borrowers in China. In line with theoretical literature, ownership concentration of the borrowing firm is assumed to influence information asymmetries in the relationship between the borrower and the lender. We analyze how ownership concentration influences the participation of foreign banks in a loan syndicate using a sample of syndicated loans granted to Chinese borrowers in the period 2004-2009 for which we have information on ownership concentration. We observe that greater ownership concentration of the borrowing firm does not positively influence participation of foreign banks in the loan syndicate. Additional estimations using alternative specifications provide similar results. As foreign banks do not react positively to ownership concentration, we conclude that information asymmetries are not exacerbated for foreign banks relative to local banks in Chin a. Moreover, it appears that increased financial leverage discourages foreign bank participation, suggesting that domestic banks are less cautious in their risk management.

Suggested Citation

  • Pierre Pessarossi & Christophe J. GODLEWSKI & Laurent Weill, 2011. "Foreign Bank Lending and Information Asymmetries in China," Working Papers of LaRGE Research Center 2011-01, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2011-01
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    References listed on IDEAS

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    1. repec:zbw:bofitp:2010_020 is not listed on IDEAS
    2. Pessarossi, Pierre & Godlewski, Christophe J. & Weill, Laurent, 2010. "Foreign bank lending and information asymmetries in China," BOFIT Discussion Papers 20/2010, Bank of Finland, Institute for Economies in Transition.

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    More about this item

    Keywords

    Bank; Foreign investors; Information asymmetry; Loan; Syndication; China.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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