IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

When bank loans are bad news: Evidence from market reactions to loan announcements under the risk of expropriation

  • Huang, Weihua
  • Schwienbacher, Armin
  • Zhao, Shan

In this paper we investigate whether inefficient bank loans can reduce the value of borrowing firms when expropriation of the stock of minority shareholders by controlling shareholders is a major concern. Using data from Chinese banks, we find that bank loan announcements generate significantly negative abnormal returns for the borrowing firms. In line with this expropriation view, negative stock price reactions following bank loan announcements are concentrated in firms that are perceived to be more vulnerable to expropriation by controlling shareholders. Finally, we find evidence that a negative relationship between market reactions and firm vulnerability to expropriation exists only when firms borrow from the least efficient banks.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S1042443111000655
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 22 (2012)
Issue (Month): 2 ()
Pages: 233-252

as
in new window

Handle: RePEc:eee:intfin:v:22:y:2012:i:2:p:233-252
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert Vishny, 1998. "Agency Problems and Dividend Policies Around the World," NBER Working Papers 6594, National Bureau of Economic Research, Inc.
  2. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
  3. Bunkanwanicha, Pramuan & Gupta, Jyoti & Rokhim, Rofikoh, 2008. "Debt and entrenchment: Evidence from Thailand and Indonesia," European Journal of Operational Research, Elsevier, vol. 185(3), pages 1578-1595, March.
  4. Barth, James R. & Lin, Chen & Lin, Ping & Song, Frank M., 2009. "Corruption in bank lending to firms: Cross-country micro evidence on the beneficial role of competition and information sharing," Journal of Financial Economics, Elsevier, vol. 91(3), pages 361-388, March.
  5. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer, 2000. "Government Ownership of Banks," Harvard Institute of Economic Research Working Papers 1890, Harvard - Institute of Economic Research.
  6. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
  7. Fields, L. Paige & Fraser, Donald R. & Berry, Tammy L. & Byers, Steven, 2006. "Do Bank Loan Relationships Still Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1195-1209, August.
  8. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  9. Rafael La Porta & Florencio Lopez-de-Silane & Guillermo Zamarripa, 2002. "Related Lending," NBER Working Papers 8848, National Bureau of Economic Research, Inc.
  10. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2005. "Bank Supervision and Corruption in Lending," NBER Working Papers 11498, National Bureau of Economic Research, Inc.
  11. Kang, Jun-Koo & Liu, Wei-Lin, 2008. "Bank incentives and suboptimal lending decisions: Evidence from the valuation effect of bank loan announcements in Japan," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 915-929, June.
  12. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1371-1411, November.
  13. Simon Johnson & Peter Boone & Alasdair Breach & Eric Friedman, 1999. "Corporate Governance in the Asian Financial Crisis," William Davidson Institute Working Papers Series 297, William Davidson Institute at the University of Michigan.
  14. Campbell R. Harvey & Karl V. Lins & Andrew H. Roper, 2001. "The Effect of Capital Structure When Expected Agency Costs are Extreme," NBER Working Papers 8452, National Bureau of Economic Research, Inc.
  15. Franklin Allen & Jun Qian & Meijun Qian, 2002. "Law, Finance, and Economic Growth in China," Center for Financial Institutions Working Papers 02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
  16. Francis , Bill B & Hasan, Iftekhar & Sun, Xian, 2009. "Political connections and the process of going public: evidence from China," Research Discussion Papers 7/2009, Bank of Finland.
  17. Dierkens, Nathalie, 1991. "Information Asymmetry and Equity Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 181-199, June.
  18. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.
  19. Fan, Joseph P. H. & Wong, T. J., 2002. "Corporate ownership structure and the informativeness of accounting earnings in East Asia," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 401-425, August.
  20. Cheung, Yan-Leung & Rau, P. Raghavendra & Stouraitis, Aris, 2006. "Tunneling, propping, and expropriation: evidence from connected party transactions in Hong Kong," Journal of Financial Economics, Elsevier, vol. 82(2), pages 343-386, November.
  21. Lins, Karl V., 2003. "Equity Ownership and Firm Value in Emerging Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 159-184, March.
  22. Cook, Douglas O. & Schellhorn, Carolin D. & Spellman, Lewis J., 2003. "Lender certification premiums," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1561-1579, August.
  23. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
  24. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  25. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  26. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  27. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
  28. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
  29. Billett, Matthew T & Flannery, Mark J & Garfinkel, Jon A, 1995. " The Effect of Lender Identity on a Borrowing Firm's Equity Return," Journal of Finance, American Finance Association, vol. 50(2), pages 699-718, June.
  30. Byers, Steven S. & Fields, L. Paige & Fraser, Donald R., 2008. "Are corporate governance and bank monitoring substitutes: Evidence from the perceived value of bank loans," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 475-483, September.
  31. Cheung, Yan-Leung & Jing, Lihua & Lu, Tong & Rau, P. Raghavendra & Stouraitis, Aris, 2009. "Tunneling and propping up: An analysis of related party transactions by Chinese listed companies," Pacific-Basin Finance Journal, Elsevier, vol. 17(3), pages 372-393, June.
  32. Charles J. Hadlock & Christopher M. James, 2002. "Do Banks Provide Financial Slack?," Journal of Finance, American Finance Association, vol. 57(3), pages 1383-1419, 06.
  33. Bai, Chong-En & Liu, Qiao & Lu, Joe & Song, Frank M. & Zhang, Junxi, 2004. "Corporate governance and market valuation in China," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 599-616, December.
  34. Firth, Michael & Lin, Chen & Zou, Hong, 2010. "Friend or Foe? The Role of State and Mutual Fund Ownership in the Split Share Structure Reform in China," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(03), pages 685-706, June.
  35. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  36. Billett, Matthew T. & Flannery, Mark J. & Garfinkel, Jon A., 2006. "Are Bank Loans Special? Evidence on the Post-Announcement Performance of Bank Borrowers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(04), pages 733-751, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:22:y:2012:i:2:p:233-252. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.