Journal of Financial Economics Vol. 133 No. 1 2019

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

Franklin Allen¹; Yiming Qian²; Guoqian Tu³; Frank Yu⁴

¹ Imperial College London · ² University of Iowa · ³ Southwestern University of Finance and Economics · ⁴ China Europe International Business School

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.

DOI

10.1016/j.jfineco.2019.01.006

Volume

133

Issue

1

Pages

18-41

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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