BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 20/2010:
Foreign bank lending and information asymmetries in China
Pierre Pessarossi ()
, Christophe J. Godlewski and Laurent Weill
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.
Keywords: bank; foreign investors; information asymmetry; loan; syndication; China; (follow links to similar papers)
JEL-Codes: G21; P34; (follow links to similar papers)
27 pages, December 30, 2010
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