TY - JOUR
T1 - Cross-ownership and collateral in lending
AU - Qian, Xuesong
AU - Ding, Zifang
AU - Cao, Xiaping
AU - Qi, Shusen
N1 - Publisher Copyright:
© 2020 Elsevier Inc.
PY - 2020/11
Y1 - 2020/11
N2 - Information asymmetry is a major obstacle in both formal and informal loan markets. However, when a borrower and a lender are connected via cross-ownership, this obstacle can be significantly reduced. Cross-ownership enables lenders to collect more concrete and precise information about borrowers, and this lowered information asymmetry reduces the likelihood that the lender will require the borrower to provide collateral. Using a data set of 1091 intercorporate loans from China, we find strong support for the prediction that cross-ownership between lenders and borrowers lowers the collateral requirements by more than 50%. This relation is more pronounced for informationally opaque borrowers and for lending firms with a controlling stake in the borrowing firms.
AB - Information asymmetry is a major obstacle in both formal and informal loan markets. However, when a borrower and a lender are connected via cross-ownership, this obstacle can be significantly reduced. Cross-ownership enables lenders to collect more concrete and precise information about borrowers, and this lowered information asymmetry reduces the likelihood that the lender will require the borrower to provide collateral. Using a data set of 1091 intercorporate loans from China, we find strong support for the prediction that cross-ownership between lenders and borrowers lowers the collateral requirements by more than 50%. This relation is more pronounced for informationally opaque borrowers and for lending firms with a controlling stake in the borrowing firms.
KW - Collateral
KW - Cross-ownership
KW - Information asymmetry
KW - Intercorporate loans
UR - http://www.scopus.com/inward/record.url?scp=85091071905&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2020.101572
DO - 10.1016/j.irfa.2020.101572
M3 - Article
AN - SCOPUS:85091071905
SN - 1057-5219
VL - 72
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 101572
ER -