Abstract
In this study, we use bank loan information to construct proxies for corporate transparency and examine whether these measures reflect information asymmetry in the stock market. Our analysis is based on a novel dataset of stock transactions and bank loans of all publicly listed firms on the Shenzhen Stock Exchange, covering January 2008 to June 2013. We find that firms with outstanding loans have a lower level of information asymmetry in the stock market, whereas firms with defaulted loans have a higher level of asymmetry. Further evidence demonstrates that the effect of loan default on information asymmetry in the stock market is more pronounced when these loans are borrowed from joint-equity commercial banks or multiple banks and when the default occurs under inactive market conditions. Our results remain robust to a series of endogeneity and sensitivity tests and provide suggestive evidence of a close connection between the credit loan and stock markets.
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