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, 677 KB, PDF document
Available under license: CC BY-NC: Creative Commons Attribution-NonCommercial 4.0 International License
Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - State-ownership and bank loan contracting
T2 - evidence from corporate fraud
AU - Hass, Lars Helge
AU - Vergauwe, Skrålan
AU - Zhang, Zhifang
N1 - 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
PY - 2019
Y1 - 2019
N2 - 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.
AB - 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.
KW - state-ownership
KW - corporate fraud
KW - cost of debt
KW - China
U2 - 10.1080/1351847X.2017.1328454
DO - 10.1080/1351847X.2017.1328454
M3 - Journal article
VL - 25
SP - 550
EP - 567
JO - European Journal of Finance
JF - European Journal of Finance
SN - 1466-4364
IS - 6
ER -