Home > Research > Publications & Outputs > State-ownership and bank loan contracting

Electronic data

  • State-ownership and bank loan contracting

    Rights statement: This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 22/05/2017, available online: http://www.tandfonline.com/10.1080/1351847x.2017.1328454

    Accepted author manuscript, 676 KB, PDF-document

    Available under license: CC BY-NC: Creative Commons Attribution-NonCommercial 4.0 International License

Links

Text available via DOI:

View graph of relations

State-ownership and bank loan contracting: evidence from corporate fraud

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>2019
<mark>Journal</mark>European Journal of Finance
Issue number6
Volume25
Number of pages18
Pages (from-to)550-567
Publication statusPublished
Early online date6/05/17
Original languageEnglish

Abstract

This paper explores the effect of borrower and lender state-ownership on the consequences of corporate fraud in the debt market. Fraud revelations can increase a firm’s information and credit risk, and are therefore expected to significantly affect future bank loan conditions. The Chinese economy provides a unique setting from which to study the influence of state-ownership on debt contracting because it is dominated by state-owned banks (SBs) and firms. Using a sample of bank loans and enforcement actions announced between 2001 and 2012, we find that, after fraud announcements, the cost of private debt increases significantly, but not for loans issued by SBs to state-owned enterprises (SOEs). Moreover, we find evidence that SBs grant, and SOEs receive, lower interest rates. Additional tests show that SOEs that received a more favorable interest rate after the announcement of fraud from a SB perform worse than other firms. These results indicate that despite the bank reforms SBs continue to favor SOEs and this could lead to sub-optimal lending.

Bibliographic note

This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 22/05/2017, available online: http://www.tandfonline.com/10.1080/1351847x.2017.1328454