Evidence of collateral, asymmetric information, credit risk, and banking regulations from firms

This article examines the determinants of a firm's proportion of collateralized loans within the context of Chinese firms. In particular, focus is placed on the effect of a new bank regulatory system on the firm's proportion of collateralized loans. The study found that a firm's proportion of collateralized loans is positively related to its level of credit risk and asymmetric information, and that this in turn is increasingly and significantly a consequence of the new banking regulatory law and guidelines of 2004. The results suggest that the new banking regulatory system has changed the way in which banks structure loan contracts in China.