When Bank Loans Are Bad News: Evidence From Market Reactions to Loan Announcements Under the Risk of Expropriation

36 Pages Posted: 24 Mar 2008 Last revised: 27 Sep 2011

See all articles by Weihua Huang

Weihua Huang

University of Maastricht - Faculty of Economics & Business Administration

Armin Schwienbacher

SKEMA Business School

Shan Zhao

City University of Hong Kong

Date Written: September 2011

Abstract

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.

Keywords: Bank Loans, Bank Monitoring, Expropriation, Corporate Governance

JEL Classification: G14, G21, G32

Suggested Citation

Huang, Weihua and Schwienbacher, Armin and Zhao, Shan, When Bank Loans Are Bad News: Evidence From Market Reactions to Loan Announcements Under the Risk of Expropriation (September 2011). Journal of International Financial Markets, Institutions and Money, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1105380

Weihua Huang (Contact Author)

University of Maastricht - Faculty of Economics & Business Administration ( email )

P.O. Box 616
Maastricht, 6211 LM
Netherlands

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777
France

HOME PAGE: http://sites.google.com/view/armin-schwienbacher

Shan Zhao

City University of Hong Kong ( email )

Hong Kong

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