Top

The Journal of Real Estate Finance and Economics

Published in:

06-05-2023

Shadow Bank, Risk-Taking, and Real Estate Financing: Evidence from the Online Loan Market

Authors: Xiaoying Deng, Chong Liu, Seow Eng Ong

Published in: The Journal of Real Estate Finance and Economics | Issue 1/2024

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

This paper examines whether and how individual risk-taking behavior affects real estate financing through shadow banks. Using the loan data from an online platform in China, we show that riskier households tend to employ online loans to meet the increasing down-payment in their home purchase. Individual investors are likely to fund riskier real estate loans with higher expected returns. Real estate loans experience higher ex-post default rates than other types of loans. The effect is more pronounced during the period of credit constraints.

next article Housing Disparity between Homeowners and Renters: Evidence from China

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

G. Wildau, “Chinese P2P lending regulations target hucksters and risk-takers”, Financial Times, August 24, 2016.

D. Weinland, and Y.Yang, “China to Crack Down on P2P Lenders,” Financial Times, March 14, 2016.

The cities that implemented the restriction policy are Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Nanjing, Wuhan, Nanchang, Shenyang, and Changsha.

Afterward, to finance the down payment, risky borrowers requested real estate loans from microfinance companies, granted with intermediary licenses.

WDZJ.com.

For example, on February 21 and April 30, 2010, the residential property purchase limits policy in Beijing is considered as "the harshest regulation in the housing market". The housing policy limits the household with a Beijing Hukou to hold two residential properties at maximum and prohibits the household without a Beijing Hukou from home purchases. The policy on the first home purchase requires a 30% down payment at least for a residential property larger than 90 m² in size. The following policy on the second home purchase is a 50% down payment at least with a mortgage rate of a minimum of 10% above the base rate.

Source: Haver Analytics.

Acharya, V. V., Qian, J., Yang, Z. (2016). In the shadow of banks: Wealth management products and issuing banks’ risks in China. Working Paper, November.

Adelino, M., Schoar, A., & Severino, F. (2016). Loan origination and defaults in the mortgage crisis: The role of the middle class. Review of Financial Studies, 29(7), 1635–1670. https://doi.org/10.1093/rfs/hhw018CrossRef

Allen, F., Qian, Y., Tu, G., & Yu, F. (2019). Entrusted loans: A close look at China’s shadow banking system. Journal of Financial Economics, 133(1), 18–41. https://doi.org/10.1016/j.jfineco.2019.01.006CrossRef

Buchak, G., Matvos, G., Piskorski, T., & Seru, A. (2018). Fintech, regulatory arbitrage, and the rise of shadow banks. Journal of Financial Economics, 130(3), 453–483.CrossRef

Chen, Z., He, Z., Liu, C. (2016). The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes. Working Paper. University of Chicago, Booth.

Chen, K., Ren, J., & Zha, T. (2018). The nexus of monetary policy and shadow banking in China. American Economic Review, 108(12), 3891–3936. https://doi.org/10.1257/aer.20170133CrossRef

De Roure, C., Pelizzon, L., Thakor, A. (2018). P2P lenders versus banks: Cream skimming or bottom fishing?. Working Paper.

Dell’Ariccia, G., Laeven, L., & Suarez, G. A. (2017). Bank leverage and monetary policy’s risk-taking channel: Evidence from the United States. Journal of Finance, 72, 613–654.CrossRef

Di Maggio, M., & Kacperczyk, M. (2017). The unintended consequences of the zero lower bound policy. Journal of Financial Economics, 123, 59–80.CrossRef

Di Maggio, M., & Kermani, A. (2017). Credit-induced boom and bust. The Review of Financial Studies, 30(11), 3711–3758. https://doi.org/10.1093/rfs/hhx056CrossRef

Duarte, J., Siegel, S., & Young, L. (2012). Trust and credit: The role of appearance in peer-to-peer lending. The Review of Financial Studies, 25(8), 2455–2484. https://doi.org/10.1093/rfs/hhs071CrossRef

Freedman, S., & Ginger, Z. J. (2017). The information value of online social networks: Lessons from peer-to-peer lending. International Journal of Industrial Organization, 51, 185–222. https://doi.org/10.1016/j.ijindorg.2016.09.002CrossRef

Fuster, A., Plosser, M., Schnabl, P., Vickery, J. (2018). The role of technology in mortgage lending. Working Paper. National Bureau of Economic Research.

Gorton, G., & Ordoñez, G. (2014). Collateral Crises. American Economic Review, 104, 343–378.CrossRef

Herzenstein, M., Sonenshein, S., & Dholakia, U. M. (2011). Tell me a good story and I may lend you money: The role of narratives in peer-to-peer lending decisions. Journal of Marketing Research, 48, S138–S149.CrossRef

Hildebrand, T., Puri, M., & Rocholl, J. (2016). Adverse incentives in crowdfunding. Management Science, 63, 587–608.CrossRef

Iyer, R., Khwaja, A. I., Luttmer, E. F. P., & Shue, K. (2016). Screening Peers Softly: Inferring the Quality of Small Borrowers. Management Science, 62(6), 1554–1577.CrossRef

Jiang, J., Liu, Y., Lu, R. (2019). Social Heterogeneity and Local Bias in Peer-to-Peer Lending ---Evidence from China, Working Paper.

Jiménez, G., Ongena, S., Peydró, J.-L., & Saurina, J. (2014). Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk-taking? Econometrica, 82, 463–505.CrossRef

Liao, L., Wang, Z., Xiang, H., Zhang, X. (2017). P2P lending in China: An overview. Working Paper.

Lin, M., Viswanathan, S., & Prabhala, R. N. (2013). Judging Borrowers by the Company They Keep: Social Networks and Adverse Selection in Online Peer-to-Peer Lending. Management Science, 59(1), 17–35.CrossRef

Maddaloni, A., & Peydró, J.-L. (2011). Bank risk-taking, securitization, supervision, and low interest rates: Evidence from the Euro-area and the US lending standards. Review of Financial Studies, 24, 2121–65.CrossRef

Mian, A., & Sufi, A. (2009). The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis. Quarterly Journal of Economics, 124, 1449–1496.CrossRef

Mian, A., & Sufi, A. (2011). House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis. American Economic Review, 101, 2132–2156.CrossRef

Mian, A., Sufi, A., & Trebbi, F. (2015). Foreclosures, House Prices, and the Real Economy. Journal of Finance, 70, 2587–2634.CrossRef

Michels, J. (2012). Do unverifiable disclosures matter? Evidence from peer-to-peer lending. The Accounting Review, 87, 1385–1413.CrossRef

Pope, D. G., & Sydnor, J. R. (2011). What’s in a Picture? Evidence of Discrimination from Prosper.com. Journal of Human Resources, 46(1), 53–92.CrossRef

Ravina, E. (2012). Love & Loans: The Effect of Beauty and Personal Characteristics in Credit Markets. Working Paper.

Senney, G. (2018). The geography of lender behavior in peer-to-peer loan markets. SSRN Scholarly Paper ID 2721756. Rochester, NY: Social Science Research Network.

Wolfe, B. & Yoo, W. (2017). Crowding out banks: Credit substitution by peer-to-peer lending. Working Paper.

Zhang, J., & Liu, P. (2012). Rational herding in microloan markets. Management Science, 58, 892–912.CrossRef

Title: Shadow Bank, Risk-Taking, and Real Estate Financing: Evidence from the Online Loan Market
Authors: Xiaoying Deng
Chong Liu
Seow Eng Ong
Publication date: 06-05-2023
Publisher: Springer US
Published in: The Journal of Real Estate Finance and Economics / Issue 1/2024
Print ISSN: 0895-5638
Electronic ISSN: 1573-045X
DOI: https://doi.org/10.1007/s11146-022-09936-7

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 1/2024

Corporate Real Estate Holding and Stock Returns: Testing Alternative Theories with International Listed Firms

Information Asymmetry with Heterogeneous Buyers and Sellers in the Housing Market

On the Impact of Infrastructure Improvement on Real Estate Property Values: Evidence from a Quasi-natural Experiment in an Emerging Market

Housing Disparity between Homeowners and Renters: Evidence from China

Starter Home Premium and Housing Affordability