The Characteristics Of Shadow Banking And The Eastern European Financial Markets
Re-lending by non-financial firms are covert actions by nature. Therefore both acquiring adequate data and finding a reliable method for identification are challenging. Allen et al (2015) carried out a manual collection of data of firms subject to mandatory disclosure, using different keywords for "entrusted loans" in annual reports and announcement. I find this method extremely grueling and generally not very trustworthy, thus I decided against it.
A more applicable methodology has been introduced by Shin and Zhao (2013) and was further developed by Wang et al (2015). They also opt for the use of financial data of listed companies, because of their reporting obligations, but their method does not rely on faithful reporting of entrusted loans in any forms. As I find this technique the most feasible both in terms of data availability and identification method, I decided to use this for the methodology of my thesis. Below, I elaborate on the underlying theories for this method.
The cornerstone of the theory is that financial intermediaries have a very distinctive feature of their balance sheets, which is not shared by other firms. Banks borrow money in order to lend it to a third party. When…