Do bank loans still convey information to investors? Evidence from the split share structure reform in China

Liping Lu, Gunseli Tumer-Alkan, Haiyang Zhang, Binbin Xu and Weixing Wu

Emerging Markets Review, 2021, vol. 48, issue C

Abstract: Bank loans can convey information about the borrowing firms that have proper corporate governance systems. Using a sample of bank loan announcements in China, we find that the market reaction is positive after the split share structure reform in 2005, which aligns the interests of large shareholders and minority shareholders, government and public investors, and alleviates their tunneling incentives. We also find that this effect is more pronounced for private firms as the reform mainly enhances corporate governance for private firms. The signaling role of bank loans is less pronounced for firms with less severe information asymmetry after the reform, e.g. higher shareholdings of mutual funds and higher proportion of independent directors. Related party transactions decrease when they obtain bank loans after the reform, which reflects the alleviation of tunneling after the reform.

Keywords: Bank loan announcements; Market reaction; SOEs; Tunneling (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:48:y:2021:i:c:s1566014120301588

DOI: 10.1016/j.ememar.2020.100773

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