Shadow Banking of Non-Financial Firms: Arbitrage between Formal and Informal Credit Markets in China

Speaker: Associate Professor Chang LI  (School of Economics, East China Normal University)

Host: Prof. Anzhou ZHANG (Liaoning University)

Introducer: Prof. Xiangjun MA(Liaoning University)

Time: May 23, 2023 (Tuesday), 14:00-15:30 (UTC +08:00)

Venue: Conference Room on the base floor of Wuzhou Garden, Chongshan Campus, Liaoning University

Online Venue: Tencent Meeting (Meeting ID: 300 7551 6895)

Language: Mandarin/English

Abstract: This study examines re-lending in corporate China, in which privileged non-financial firms obtain bank loans and then re-lend to firms disadvantaged in securing formal finance. We document the characteristics of intercorporate loans from a sample of legal cases. We employ four empirical strategies to conduct a forensic study of re-lending by detecting abnormal relations between financial accounts. State-controlled companies conduct more re-lending. Firms with better growth opportunities, stronger corporate governance, and more financial constraints engage less in re-lending. Firms extending nonaffiliated entrusted loans conduct re-lending actively, while firms offering affiliated entrusted loans do not. Compared with the micro-credit company loans, re-lending is less formal and less standardized.