Foreign bank lending and information asymmetries in China

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Title: Foreign bank lending and information asymmetries in China
Author: Pessarossi, Pierre ; Godlewski, Christophe J. ; Weill, Laurent
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 20/2010
Year of publication: 2010
Publication date: 28.12.2010
Published in: Published in Journal of Asian Economics, Volume 23, Issue 4, August 2012, Pages 423-433
Pages: 27 s.
Keywords: ulkomaiset pankit; pankkitoiminta; Kiina; luotonanto; yritykset; informaatio; luotot; Bofit-kokoelma
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 China. Moreover, it appears that increased financial leverage discourages foreign bank participation, suggesting that domestic banks are less cautious in their risk management.
Note: Ilmestynyt myös Journal of Asian Economics 2012 ; 23 ; 4.

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