Expected stock price crash risk and bank loan pricing: Evidence from China's listed firms

Xiaolong Gu, Yu Xin and Liping Xu

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: This study investigates whether the stock price crash risk is priced in private debt contracting. We find that the expected stock price crash risk is positively associated with the bank loan interest spread, indicating that banks consider stock price crashes to be an important risk factor when issuing loans. In the Chinese context, we further show that the positive association between the expected stock price crash risk and the bank loan interest spread disappears when the loan-issuing bank is a major state-owned bank and when the borrowing firm has political connections. However, state influence and social networks mainly have effects in areas with poor legal environments. Finally, we find that when the crash risk is perceived to be high, the loan maturity is shorter. These findings indicate that Chinese banks use the price terms to reap risk premiums and non-price terms to control the credit risk, but only in areas with strong formal institutions.

Keywords: Crash risk; Loan pricing; Political connection; State influence; Marketization (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X18306036
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18306036

DOI: 10.1016/j.pacfin.2019.06.013

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().