Large Creditors and Corporate Governance : The Case of Chinese Banks
This paper investigates whether Chinese banks, which are the major suppliers of firms' external funds, effectively monitor the borrowers as large creditors. By examining two bank loan policies including loan interest rates and loan renewals, we find a negative relationship between loan interest rates and the financial performance of the borrowers. However, a negative relationship is also found between loan renewals and the financial performance of the borrowers so that the worse a firm performs, the more likely it will get its bank loans renewed. Additional analyses indicate that the loan renewal results are largely driven by state-owned enterprises (SOEs). Our conclusion is that Chinese banks play an effective role in monitoring and disciplining borrowers through loan interest rates. However, since China's lending policy still remains ineffective, banks have little say in deciding whether to continue credits based on borrowers' performance
Year of publication: |
[2009]
|
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Authors: | Hu, Yiming |
Other Persons: | Li, Siqi (contributor) ; Lin, Thomas W. (contributor) ; Xie, Shilei (contributor) |
Publisher: |
[2009]: [S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
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