Are Firm- and Country-Specific Governance Substitutes? Evidence from Financial Contracts in Emerging Markets

60 Pages Posted: 19 Apr 2012  

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Iftekhar Hasan

Gabelli School of Business, Fordham University; Bank of Finland

Liang Song

Date Written: April 12, 2012

Abstract

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.

Keywords: corporate governance, financial contracts, emerging markets

JEL Classification: G20, G30, G31, G34, G38

Suggested Citation

Francis, Bill B. and Hasan, Iftekhar and Song, Liang, Are Firm- and Country-Specific Governance Substitutes? Evidence from Financial Contracts in Emerging Markets (April 12, 2012). Bank of Finland Research Discussion Paper No. 12/2012. Available at SSRN: https://ssrn.com/abstract=2041236 or http://dx.doi.org/10.2139/ssrn.2041236

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Iftekhar Hasan (Contact Author)

Gabelli School of Business, Fordham University ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

No contact information is available for Liang Song

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