Family succession and cost of bank loans: Evidence from China

Tzu-Ching Weng and Hsin-Yi Chi

International Review of Economics & Finance, 2024, vol. 89, issue PB, 638-655

Abstract: This study examines the effect of family succession on the cost of bank loans and non-price contractual terms. We use a unique dataset from China and find that lending banks are likely to charge higher interest rates and offer tighter contractual terms, such as loan maturity and collateral requirements, for family succession firms. These findings indicate that information asymmetry and default risks may arise after subsequent family successions. We also find that family succession firms can lower the cost of bank loans by hiring top-tier auditors, who can enhance financial reporting credibility. This finding suggests that professional, high-quality auditors can provide extremely valuable services to family succession firms.

Keywords: Family succession; Cost of bank loans; Loan contract terms; Top-tier auditor (search for similar items in EconPapers)
JEL-codes: G21 G34 M41 M42 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:638-655

DOI: 10.1016/j.iref.2023.10.019

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