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Are firm- and country-specific governance substitutes? Evidence from financial contracts in emerging markets

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Author Info

  • Francis, Bill

    ()
    (Lally School of Management and Technology, Rensselaer Polytechnic Institute)

  • Hasan, Iftekhar

    ()
    (Schools of Business, Fordham University, New York, NY 10019, USA and Bank of Finland,)

  • Song, Liang

    ()
    (School of Business and Economics, Michigan Technological University, Houghton, MI 49931)

Abstract

We investigate how borrowers’ corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level corporate governance are substitutes in writing and enforcing financial contracts. We also find that the distinctiveness of borrowers’ characteristics affect the relation between firm-level corporate governance and loan contracting terms. Our findings are robust, irrespective of types of regression methods and specifications.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 12/2012.

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Length: 57 pages
Date of creation: 12 Apr 2012
Date of revision:
Handle: RePEc:hhs:bofrdp:2012_012

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: corporate governance; financial contracts; emerging markets;

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