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, Weixing Wu*

*Corresponding author for this work

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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.

Original languageEnglish
Article number100773
Pages (from-to)1-11
Number of pages11
JournalEmerging Markets Review
Volume48
Early online date5 Nov 2020
DOIs
Publication statusPublished - Sept 2021

Bibliographical note

Funding Information:
We acknowledge the financial support by the National Natural Science Foundation of China (No. 71603225 ). Zhang acknowledges the financial support by the Beijing Social Science Foundation (No. 17YJA005 ). Lu acknowledges the great research assistant work by Zhihan Zhou.

Publisher Copyright:
© 2020

Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.

Funding

We acknowledge the financial support by the National Natural Science Foundation of China (No. 71603225 ). Zhang acknowledges the financial support by the Beijing Social Science Foundation (No. 17YJA005 ). Lu acknowledges the great research assistant work by Zhihan Zhou.

FundersFunder number
National Natural Science Foundation of China71603225
Beijing Social Science Fund17YJA005

    Keywords

    • Bank loan announcements
    • Market reaction
    • SOEs
    • Tunneling

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