Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 133, Issue 1, Pages 18-41Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2019.01.006
Keywords
Shadow banking; Entrusted loans; Credit shortage; Fundamental risk; Informational risk
Categories
Funding
- National Natural Science Foundation of China [71232004, 71172082, 71172083]
- Social Science Foundation of the Ministry of Education of China [14XJC790009]
- China Europe International Business School [17ELAC]
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We perform transaction-level analyses of entrusted loans, one of the largest components of shadow banking in China. Entrusted loans involve firms with privileged access to cheap capital channeling funds to less privileged firms, and the increase when credit is tight. Nonaffiliated loans have much higher interest rates than both affiliated loans and official bank loans, and they largely flow into real estate. The pricing of entrusted loans, especially of nonaffiliated loans, incorporates fundamental and informational risks. Stock market reactions suggest that both affiliated and nonaffiliated loans are fairly compensated investments. (C) 2019 Elsevier B.V. All rights reserved.
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