Document Type

Article

Publication Date

12-31-2019

Publication Title

Financial Review

Keywords

government, state banks, interest rates, private banks, rent

Disciplines

Business | Finance and Financial Management

Abstract

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.

DOI

10.1111/fire.12197

Version

Postprint

Volume

55

Issue

2

Available for download on Thursday, December 31, 2020

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