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Conference Paper: Does Informal Finance Help Formal Finance? Evidence from Third Party Loan Guarantees in China

TitleDoes Informal Finance Help Formal Finance? Evidence from Third Party Loan Guarantees in China
Authors
KeywordsThird party guarantee
Informal finance
Loan default
Soft information
Issue Date2011
PublisherSummer Institute of Finance.
Citation
The 2nd Capital Markets Program Meeting and Corporate Finance Program Meeting, Kunming, China, 14-15 July 2011 How to Cite?
AbstractBuilding on the important study by Allen, Qian and Qian (2005) and Ayyagari, Demirgüc-Kunt and Maksimovic (2010), we examine whether third party guarantors play an effective role in assessing loan risk. Using a proprietary database of third party loan guarantees in China, we find strong evidence that guarantors and banks disagree on pricing loan risk, and that banks can better predict loan defaults than guarantors. We also find that the probability of loan default is affected by the capability of guarantor officers. Our findings question the contribution of soft information in the improvement of credit scoring and support the view that informal finance should be limited. This paper also supports the implications of studies on human capital in financial intermediation.
Persistent Identifierhttp://hdl.handle.net/10722/141193

 

DC FieldValueLanguage
dc.contributor.authorTang, Yen_US
dc.contributor.authorShan, Cen_US
dc.date.accessioned2011-09-23T06:27:44Z-
dc.date.available2011-09-23T06:27:44Z-
dc.date.issued2011en_US
dc.identifier.citationThe 2nd Capital Markets Program Meeting and Corporate Finance Program Meeting, Kunming, China, 14-15 July 2011en_US
dc.identifier.urihttp://hdl.handle.net/10722/141193-
dc.description.abstractBuilding on the important study by Allen, Qian and Qian (2005) and Ayyagari, Demirgüc-Kunt and Maksimovic (2010), we examine whether third party guarantors play an effective role in assessing loan risk. Using a proprietary database of third party loan guarantees in China, we find strong evidence that guarantors and banks disagree on pricing loan risk, and that banks can better predict loan defaults than guarantors. We also find that the probability of loan default is affected by the capability of guarantor officers. Our findings question the contribution of soft information in the improvement of credit scoring and support the view that informal finance should be limited. This paper also supports the implications of studies on human capital in financial intermediation.-
dc.languageengen_US
dc.publisherSummer Institute of Finance.-
dc.relation.ispartofCapital Markets Program Meeting and Corporate Finance Program Meetingen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectThird party guarantee-
dc.subjectInformal finance-
dc.subjectLoan default-
dc.subjectSoft information-
dc.titleDoes Informal Finance Help Formal Finance? Evidence from Third Party Loan Guarantees in Chinaen_US
dc.typeConference_Paperen_US
dc.identifier.emailTang, Y: yjtang@hku.hken_US
dc.identifier.authorityTang, Y=rp01096en_US
dc.description.naturepublished_or_final_version-
dc.identifier.hkuros195856en_US
dc.publisher.placeChina-

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