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

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Haß, Lars Helge, Vergauwe, Skrålan and Zhang, Zhifang (2019) State-ownership and bank loan contracting : evidence from corporate fraud. The European Journal of Finance, 25 (6). pp. 550-567. doi:10.1080/1351847X.2017.1328454 ISSN 1351-847X.

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Official URL: http://dx.doi.org/10.1080/1351847X.2017.1328454

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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
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
H Social Sciences > HV Social pathology. Social and public welfare
Divisions: Faculty of Social Sciences > Warwick Business School > Accounting
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Government ownership, Government ownership - China, Fraud, Corporations -- Corrupt practices -- China, Debts, Public, Debts, Public -- China
Journal or Publication Title: The European Journal of Finance
Publisher: Taylor & Francis
ISSN: 1351-847X
Official Date: 2019
Dates:
DateEvent
2019Published
22 May 2017Available
1 May 2017Accepted
Volume: 25
Number: 6
Page Range: pp. 550-567
DOI: 10.1080/1351847X.2017.1328454
Status: Peer Reviewed
Publication Status: Published
Reuse Statement (publisher, data, author rights): This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 22 May 2017, available online: http://www.tandfonline.com/10.1080/1351847X.2017.1328454
Access rights to Published version: Restricted or Subscription Access
Date of first compliant deposit: 22 July 2019
Date of first compliant Open Access: 23 July 2019
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