Effects of Foreign Institutional Ownership on Foreign Bank Lending: Some Evidence for Emerging Markets

31 Pages Posted: 5 Jun 2014

See all articles by Liangliang Jiang

Liangliang Jiang

Hong Kong Polytechnic University

Yi Zhu

Hong Kong Monetary Authority

Date Written: June 2014

Abstract

Despite the large literature on developed countries, little is known about the interactions between corporate governance, foreign ownership, and foreign bank lending in developing countries. Using data from five Latin American countries from 2001 to 2008, we provide one of the first pieces of evidence of how foreign ownership affects the loan cost of borrowers in emerging markets. We find that in terms of foreign bank lending, the cost of debt financing is significantly higher for firms whose largest shareholder is a foreign institutional one. The results support the hypothesis that because of potential agency conflicts between shareholders and creditors, having block institutional shareholders tend to increase the borrowers’ debt burden. There is further evidence supporting this agency conflict hypothesis as we find that the effects of large institutional shareholders on borrowing costs become larger (smaller) when the conflicts are aggravated (mitigated).

JEL Classification: G20, G32

Suggested Citation

Jiang, Liangliang and Zhu, Yi, Effects of Foreign Institutional Ownership on Foreign Bank Lending: Some Evidence for Emerging Markets (June 2014). International Review of Finance, Vol. 14, Issue 2, pp. 263-293, 2014. Available at SSRN: https://ssrn.com/abstract=2446294 or http://dx.doi.org/10.1111/irfi.12021

Liangliang Jiang (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Yi Zhu

Hong Kong Monetary Authority

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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