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Information and Bargaining Power: Evidence from SME Lending in China

The bank has the access to hard and soft information about small and medium-sized enterprises (SMEs) in order to manage the informational opacity. We carry out the study about the information and bargaining power between lenders and borrowers. Bargaining power is depicted based on more favorable loan rate. The proxy is regressed on hard information, soft information and other variables. We find out that more favorable hard information (Registered Capital and Proceeds of Sale) increases borrowers' bargaining power in China. We also obtain evidence suggesting that the length of borrowers' business affect the bargaining power.