Entrusted loans: A close look at China's shadow banking system

Franklin Allen; Fang Yu; Yiming Qian; Guoqian Tu

doi:10.1016/j.jfineco.2019.01.006

Entrusted loans: A close look at China's shadow banking system

Franklin Allen (First Author), Fang Yu (Participant Author), Yiming Qian (Participant Author), Guoqian Tu (Participant Author)

Finance

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Abstract

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.

Original language	English
Pages (from-to)	18-41
Journal	Journal of Financial Economics
Volume	133
Issue number	1
DOIs	https://doi.org/10.1016/j.jfineco.2019.01.006
Publication status	Published - 2019

Corresponding author email

tuguoqian@cqu.edu.cn

Project sponsor

国家自然科学基金

Project name

2004 重点项目管理科学部 2012 题目

Project No.

71232004

Keywords

Credit shortage
Entrusted loans
Fundamental risk
Informational risk
Shadow banking

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10.1016/j.jfineco.2019.01.006Licence: CC BY-NC-ND

SSRN-id2621330 Entrusted loans A close look at China's shadow banking systemAccepted author manuscript, 554 KBLicence: CC BY-NC-ND

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Entrusted loans: A close look at China's shadow banking system

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