Borrower Opacity and Loan Performance: Evidence from China

  • Haoyu Gao
  • Junbo WangEmail author
  • Xiaoguang Yang
  • Lin Zhao


We use survey data from the China Banking Regulatory Commission to construct a proxy for a firm’s opacity to examine its causes and influences. Our opacity proxy is positively associated with the distance between firms and banks, the geographic dispersion of business groups, and the size of the intra-group guarantee. Firms with higher opacity have a higher default probability particularly given a poor credit history or membership in a business group with low quality credit. Our evidence, which is robust to different model specifications, confirms that the borrower’s opacity can reduce the efficiency of bank monitoring. Our study indicates that loan officers have a good idea of the borrower’s opacity, and their professional opinions effectively reflect this perception.


Information opacity Loan officers’ opinions Default Monitoring 

JEL Classification

G12 G13 



Haoyu Gao acknowledges financial support from a research grant from the National Science Foundation of China (No. 71702207) as do Junbo Wang (Nos. 71528001 and 71720107002), Xiaoguang Yang (Nos. 71431008 71532013 and 71850008), and Lin Zhao (No. 71871212).


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Authors and Affiliations

  1. 1.Central University of Finance and EconomicsBeijingChina
  2. 2.City University of Hong KongKowloon TongHong Kong
  3. 3.Academy of Mathematics and Systems Science, Chinese Academy of SciencesUniversity of Chinese Academy of SciencesBeijingChina
  4. 4.Academy of Mathematics and Systems ScienceChinese Academy of SciencesBeijingChina

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