BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 1/2015:
Who gains from credit granted between firms? Evidence from inter-corporate loan announcements made in China
Qing He ()
, Liping Lu ()
and Steven Ongena ()
Abstract: Who gains from inter-corporate credit? To answer this
question we investigate the reactions of the stock prices of both the
issuing and receiving firms to the announcements of 719 inter-corporate
loans that took place between 2005 and 2012 in China. We find that the
average abnormal return for the issuers of inter-corporate loans is
significantly negative, whereas the corresponding return for those firms
receiving credit is positive. Investors may worry that issuing firms may
have run out of other worthwhile projects to finance, while at the same
time they may view credit-receiving firms as being certified as worthy
borrowers. The issuance of intra-group loans, especially those with higher
interest rates, is associated with lower returns overall since such loans
may signal a spreading of financial distress to the rest of the group.
After issuing inter-corporate loans, firms are also found to have lower
accounting performance, which confirms the aforementioned signaling
interpretation.
Keywords: entrusted loan; inter-corporate loan; credit misallocation; certification; (follow links to similar papers)
JEL-Codes: G14; G21; G30; (follow links to similar papers)
49 pages, January 17, 2015
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