When bank loans are bad news: Evidence from market reactions to loan announcements under the risk of expropriation

Weihua Huang, Armin Schwienbacher and Shan Zhao

Journal of International Financial Markets, Institutions and Money, 2012, vol. 22, issue 2, 233-252

Abstract: In this paper we investigate whether inefficient bank loans can reduce the value of borrowing firms when expropriation of the stock of minority shareholders by controlling shareholders is a major concern. Using data from Chinese banks, we find that bank loan announcements generate significantly negative abnormal returns for the borrowing firms. In line with this expropriation view, negative stock price reactions following bank loan announcements are concentrated in firms that are perceived to be more vulnerable to expropriation by controlling shareholders. Finally, we find evidence that a negative relationship between market reactions and firm vulnerability to expropriation exists only when firms borrow from the least efficient banks.

Keywords: Bank loans; Bank monitoring; Expropriation (search for similar items in EconPapers)
JEL-codes: G14 G21 G32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:22:y:2012:i:2:p:233-252

DOI: 10.1016/j.intfin.2011.09.004

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