The determinants of high‐interest entrusted loans in China

We examine the determinants of high‐interest entrusted loans in China from the perspective of corporate risk‐taking. The results of a baseline model illustrate that the propensity to offer high‐interest entrusted loans increases with loose monetary policies, corporate cash holdings and firm age, and...

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Bibliographic Details
Published in:Journal of business finance & accounting 2021-01, Vol.48 (1-2), p.405-430
Main Authors: Yu, Yan, Lee, Yi‐Tsung, Fok, Robert C.W.
Format: Article
Language:English
Subjects:
Analysis
CEO characteristics
Corporate governance
high‐interest entrusted loans
imperfect market
Loans
Monetary policy
Profits
Risk behavior
risk‐taking
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Summary:We examine the determinants of high‐interest entrusted loans in China from the perspective of corporate risk‐taking. The results of a baseline model illustrate that the propensity to offer high‐interest entrusted loans increases with loose monetary policies, corporate cash holdings and firm age, and it decreases with firm size and growth opportunity. These findings support the claim that firms offer high‐interest entrusted loans mainly for short‐term profits. Other determining factors include CEO behavior traits, market imperfections and the intensity of corporate governance. Specifically, market imperfections create an opportunity for risk‐taking while CEO behavior and the intensity of corporate governance affect a firm's tendency to take risk and engage in high‐interest entrusted loans.
ISSN:0306-686X
1468-5957
DOI:10.1111/jbfa.12474