Are Firm- and Country-Specific Governance Substitutes? Evidence from Financial Contracts in Emerging Markets
Bill B. Francis
Rensselaer Polytechnic Institute (RPI) - Lally School of Management
Gabelli School of Business, Fordham University; Bank of Finland
Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology
April 12, 2012
Bank of Finland Research Discussion Paper No. 12/2012
We investigate how borrowers’ corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level corporate governance are substitutes in writing and enforcing financial contracts. We also find that the distinctiveness of borrowers’ characteristics affect the relation between firm-level corporate governance and loan contracting terms. Our findings are robust, irrespective of types of regression methods and specifications.
Number of Pages in PDF File: 60
Keywords: corporate governance, financial contracts, emerging markets
JEL Classification: G20, G30, G31, G34, G38
Date posted: April 19, 2012
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