When Bank Loans Are Bad News: Evidence From Market Reactions to Loan Announcements Under the Risk of Expropriation
University of Maastricht - Faculty of Economics & Business Administration
Univ. Lille Nord de France - SKEMA Business School
Grenoble Ecole de Management
Journal of International Financial Markets, Institutions and Money, Forthcoming
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.
Number of Pages in PDF File: 36
Keywords: Bank Loans, Bank Monitoring, Expropriation, Corporate Governance
JEL Classification: G14, G21, G32Accepted Paper Series
Date posted: March 24, 2008 ; Last revised: September 27, 2011
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