| Both the interest rate and amount of entrusted loan has increased significantly since2008, which has great impact on the central bank’s monetary policy and enterprisemanagement decision, causing the wide attention from academia and the media. Not onlythe reason but the influence factors of entrusted loan are concerned.Using a sample of entrusted loans of listed companies between2004and2012, thisthesis empirically analyzes the effects of equity connection and external financing on theprice of loan between firms. On one hand, it is found that75.6%of entrusted loanshappened between firms which have equity connection and that equity connectiondecreases interest rate of entrusted loans. Further analyses shows that two channels work.Additional evidence finds that entrusted loans between firms behave differently. On theother hand, it is found that45.9%of listed companies have external financing via theissuance of stocks or bonds before making entrusted loans. Further analyses show thatexternal financing significantly decreases the price of loan between related firms. It notonly mitigates the extent that poor financial market conditions affect the interest rate ofrelated entrusted loan, but also makes that loan price doesn’t reflect borrower’s risk fully.Additional evidence finds that the interest rate of loan between unrelated firms is biggerthan interest rate of bank credit. Moreover, external financing make the price higher.The phenomenon above distorted credit pricing mechanism, which aggravatesfinancial risk, so China government should reinforce the supervision of entrusted loans.Regulators must concern the higher entrusted loan interest rates between affiliatedenterprises. Meanwhile, securities and futures commission and other regulatorydepartments must pay close attention to listed companies who change the use of raisefunds to lend entrust loan to affiliated enterprise with high interest rate, guidingenterprise to pay attention to the risk problem of entrusted loans. |
PDF Full Text Request