An investigation of credit borrower concentration

• Main Authors: YUE, Heng, RAO, Pingui, ZHU, Jigao
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Borrower concentration; Related lending; Banks; Tunneling; China; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1637; https://ink.library.smu.edu.sg/context/soa_research/article/2664/viewcontent/1_s20_S0378426615000199_main.pdf
• Institution: Singapore Management University

Credit borrower concentration arises when a bank or financial institution lends a large amount of its funds to a few large borrowers. We find that borrower concentration is positively related to non-performing loans and negatively related to financial performance. We also find that the voting power of bank’s controlling shareholder is positively related to the borrower concentration. The evidence is consistent with the view that controlling shareholders divert resources away from banks by extending a high volume of loans to a few related parties, which leads to high borrower concentration. Further evidence indicates that some seemingly unrelated large borrowers, as reported in the financial disclosure, are actually related to the controlling shareholders. We also provide evidence that going public mitigates the tunneling activities of controlling shareholders.