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Rollover risk and cost of bank debt: The role of family-control ownership

Wan-Chien Chiu and Chih-Wei Wang

Pacific-Basin Finance Journal, 2019, vol. 53, issue C, 362-378

Abstract: This study examines the effect of family-control ownership on the relationship between the cost of bank debts and the risk of rolling over maturing debts into new debts. We examine Taiwanese firms during 1996–2015 and find that, among all firms exposed to rollover risk, firms with family-control ownership pay more interest on bank loans than firms with nonfamily-control ownership. Furthermore, the loan cost increasing effect is stronger for family-control firms with informational opacity and poorer credit quality. Our evidence supports the agency theory argument that family-control ownership intensifies the shareholder–debtholder conflict associated with the rollover risk. As such, this investigation provides novel empirical insights into the firm-level interaction among family control, rollover risk, and bank debt costs.

Keywords: Family-control ownership; Bank loan; Rollover risk; Short-term debt (search for similar items in EconPapers)
JEL-codes: G00 G18 G21 G32 G33 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.pacfin.2018.12.003

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Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:362-378