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Rollover risk and cost of bank debt: The role of family-control ownership

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  • Chiu, Wan-Chien
  • Wang, Chih-Wei

Abstract

This study examines the effect of family-control ownership on the relationship between the cost of bank debts and the risk of rolling over maturing debts into new debts. We examine Taiwanese firms during 1996–2015 and find that, among all firms exposed to rollover risk, firms with family-control ownership pay more interest on bank loans than firms with nonfamily-control ownership. Furthermore, the loan cost increasing effect is stronger for family-control firms with informational opacity and poorer credit quality. Our evidence supports the agency theory argument that family-control ownership intensifies the shareholder–debtholder conflict associated with the rollover risk. As such, this investigation provides novel empirical insights into the firm-level interaction among family control, rollover risk, and bank debt costs.

Suggested Citation

  • Chiu, Wan-Chien & Wang, Chih-Wei, 2019. "Rollover risk and cost of bank debt: The role of family-control ownership," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 362-378.
    • Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:362-378
    DOI: 10.1016/j.pacfin.2018.12.003
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    Cited by:

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    4. Iwaki, Hiromichi & Saito, Junyu, 2022. "Does rollover risk matter to payout policies? Evidence from Japanese listed firms," Journal of Economics and Business, Elsevier, vol. 120(C).
    5. Lee, Chien-Chiang & Wang, Chih-Wei & Hsieh, Hsin-Yi & Chen, Wen-Ling, 2023. "The impact of central bank digital currency variation on firm's implied volatility," Research in International Business and Finance, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Family-control ownership; Bank loan; Rollover risk; Short-term debt;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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