government, state banks, interest rates, private banks, rent
Business | Finance and Financial Management
In a lending relationship, a bank with an information advantage regarding its client tends to hold up the borrower and charge higher interest rates. We conjecture that state-owned enterprises (SOEs), with worse information asymmetry, are subject to greater information
rents. State-owned banks place less emphasis on information production and hence extract lower rents compared to profit maximizing private banks. We use the decline of loan interest rates around the borrowers’ equity initial public offerings (IPOs) as the proxy of banks’ information rents. We find SOEs in China experience
larger declines in loan interest rates around their IPOs; the central government-controlled Big Four banks exhibit smaller declines in rates they charge, and their rate declines concentrate on loans made to SOEs.
Ru, Fengyan; Liang, Qi; and Wang, Wei, "State Ownership and Banks Information Rents: Evidence from China" (2019). Business Faculty Publications. 280.
NOTICE: this is the author’s version of a work that was accepted for publication in . Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Financial Review, 55, 2, (2019), 10.1111/fire.12197.