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The impact of loan rollover restrictions on capital structure adjustments, leverage deviations, and firm values

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  • Liu, Haiming
  • Chiang, Yao-Min
  • Tsai, Hui-Ju

Abstract

We use a Chinese regulatory change as a quasi-natural experiment to study the impact of short-term lending regulation shocks on firms. Specifically, we use a difference-in-differences method to identify the effects of the Chinese Lending Guideline 2007, which imposed a restriction on the rollover of short-term loans, on capital structure adjustment speeds, leverage deviations, and values of firms. We show that after the rollover restrictions, the capital structure adjustment speed slows down, and the capital structure deviation increases. Moreover, due to improved corporate governance, firms more relying on short-term loans increase their value more than their counterparts.

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  • Liu, Haiming & Chiang, Yao-Min & Tsai, Hui-Ju, 2020. "The impact of loan rollover restrictions on capital structure adjustments, leverage deviations, and firm values," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x19305086
    DOI: 10.1016/j.pacfin.2020.101384
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    More about this item

    Keywords

    Chinese lending guideline 2007; Loan rollover; Capital structure adjustment speed; Capital structure deviation; Corporate governance; Firm value;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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