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

Hass, Lars Helge and Vergauwe, Skrålan and Zhang, Zhifang (2019) State-ownership and bank loan contracting:evidence from corporate fraud. European Journal of Finance, 25 (6). pp. 550-567. ISSN 1466-4364

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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.

Item Type: Journal Article
Journal or Publication Title: European Journal of Finance
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 22/05/2017, available online: http://www.tandfonline.com/10.1080/1351847x.2017.1328454
Uncontrolled Keywords: /dk/atira/pure/subjectarea/asjc/2000/2001
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 86689
Deposited By: ep_importer_pure
Deposited On: 14 Jun 2017 09:20
Refereed?: Yes
Published?: Published
Last Modified: 17 Feb 2020 03:33
URI: https://eprints.lancs.ac.uk/id/eprint/86689

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