The choice between bank loans, affiliated loans, and non-affiliated loans: evidence from Chinese listed firms

ABSTRACT

Using 1944 matched transaction level data over the period 2003 to 2015, we examined the determinants of choice between bank loans, affiliated loans and non-affiliated loans by listed firms in China. Our results show that firms engaged with affiliated loans or non-affiliated loans, which belong to the shadow-banking system, are more likely to pay a higher interest rate and have a shorter loan maturity when compared with a bank loan. In addition, large firms and firms with low liquidity have a higher likelihood of establishing an affiliated loan and non-affiliated loan relationship. Moreover, compared with bank loans, affiliated loans and non-affiliated loans tend to flow to the electricity, gas and water supply industries, which are very limited entry industries that are dominated by state-owned firms.

KEYWORDS:

• Bank loan
• affiliated loan
• non-affiliated loan
• deal terms
• firm characteristics

JEL CLASSIFICATION:

• G02
• G21
• G29

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ It includes 1041 bank loans, 184 non-affiliate entrust loans and 719 affiliate entrust loans.

² The test results are available upon request.

Additional information

Funding

This work was supported by the National Social Science Fund of China (18VSJ035), and the National Natural Science Foundation of China (71473036, 71673043, 71503041).