Ownership Structure and Collateral Requirements : Evidence from China's Listed Firms

This paper examines the effect of ownership structure on collateral requirements using the sample of China's listed firms from 2007 to 2009. We find that compared to privately controlled companies, state-controlled companies have lower collateral requirements, and such difference is more pronounced for firms in troubled industries. The empirical results also show that companies with more foreign ownership have lower collateral requirements, and the effect of state control on the collateral requirements is weaker in such companies. As well, companies with more third party guarantees have lower collateral requirements, and the effect of state control on the collateral requirement is weaker in such companies. In addition, we find that institutional development is of importance in reducing collateral requirements for privately controlled companies while its role is overturned for state-controlled companies