IDEAS home Printed from https://ideas.repec.org/a/taf/eurjfi/v25y2019i6p550-567.html
   My bibliography  Save this article

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

Author

Listed:
  • Lars Helge Haß
  • Skrålan Vergauwe
  • Zhifang Zhang

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.

Suggested Citation

  • Lars Helge Haß & Skrålan Vergauwe & Zhifang Zhang, 2019. "State-ownership and bank loan contracting: evidence from corporate fraud," The European Journal of Finance, Taylor & Francis Journals, vol. 25(6), pages 550-567, April.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:550-567
    DOI: 10.1080/1351847X.2017.1328454
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1351847X.2017.1328454
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1351847X.2017.1328454?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Lu & Su, Zhong-qin & Fung, Hung-Gay & Jin, Hong-min & Xiao, Zuoping, 2021. "Do CEOs with academic experience add value to firms? Evidence on bank loans from Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    2. Bahoo, Salman, 2020. "Corruption in banks: A bibliometric review and agenda," Finance Research Letters, Elsevier, vol. 35(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:25:y:2019:i:6:p:550-567. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REJF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.