scholarly journals Listing status, family firm and the cost of bank loan financing.

2012 ◽  
Vol 9 (2) ◽  
pp. 56-66
Author(s):  
Wan-Ying Lin
Keyword(s):  
Corporate Governance ◽  
Family Firms ◽  
Lower Cost ◽  
Good Governance ◽  
Bank Loans ◽  
Bank Loan ◽  
Cost Of Debt ◽  
Private Firms ◽  
Financing Cost ◽  
The Impact

This research examines the impact of firm’s listing status on the relationship between corporate governance and cost of bank loans. The analysis yields four major findings after controlling for firm characteristics and prime interest rate. First, the financing cost of debt is higher for private firms. This result confirms that information risk is higher for private firms. Second, family firms enjoy lower cost of debt. The result found is consistent with the literature that family firms are related to a lower cost of debt financing. Third, that family firms having lower cost of debt is only found in listed firms. This evidence supports the prediction based on the lack of market perspective which suggests that the family effect requires a capital market to make it substantiate. Finally, strong corporate governance helps reduce financing cost of debt. However, these governance effects are not affected by the listing status. In other words, commercial lenders in this study price indifferently for good governance mechanisms regardless of public or private firms.

No-Fly Zone in the Loan Office: How Chief Executive Officers’ Risky Hobbies Affect Credit Stakeholders’ Evaluation of Firms

2021 ◽  
Author(s):  
Bo Ouyang ◽  
Yi Tang ◽  
Chong Wang ◽  
Jian Zhou
Keyword(s):  
Chief Executive Officers ◽  
Default Risk ◽  
Chief Executive ◽  
Bank Loans ◽  
Bank Loan ◽  
Cost Of Debt ◽  
Data Set ◽  
Work Related ◽  
Executive Officers ◽  
The Impact

The extant research has often examined the work-related experiences of corporate executives, but their off-the-job activities could be just as insightful. This study employs a novel proxy for the risky hobbies of chief executive officers (CEOs)—CEOs’ hobby of piloting a private aircraft—and investigates its effect on credit stakeholders’ evaluation of the firms led by the CEOs as reflected in bank loan contracting. Using a longitudinal data set on CEOs of large United States-listed firms across multiple industries between 1993 and 2010, we obtain strong evidence that bank loans to firms steered by CEOs who fly private jets as a hobby tend to incur a higher cost of debt, to be secured, to have more covenants, and to be syndicated. These effects are mainly driven by banks, which perceive such firms as having a higher default risk. These relationships become stronger when the CEO is more important to the firm and/or can exercise stronger control over decision making. Supplemented by field interviews, our results are also robust to various endogeneity checks using different experimental designs, the Heckman two-stage model, a propensity score-matching approach, a difference-in-differences test, and the impact threshold of confounding variables.

Discretionary Accruals in Italian Private Firms and Non-Linear Bank Loan Granting

2017 ◽  
pp. 83-99
Author(s):  
Elisabetta Mafrolla ◽  
Viola Nobili
Keyword(s):  
Financial Reporting ◽  
Banking System ◽  
Regulatory System ◽  
Discretionary Accruals ◽  
Bank Loans ◽  
Bank Loan ◽  
Banking Union ◽  
Private Firms ◽  
European Banking Union

This paper investigates whether and at what extent private firms reduce the quality of their accruals in order to signal a better portrait to the bank and obtain new or larger bank loans. We measure earnings discretionary accruals of a sample of Italian private firms, testing whether new and larger bank loans are associated with a higher (lower) quality of earnings in borrowers' financial reporting. We study bank loan levels and changes and how they impact discretionary accruals and found that, surprisingly, private firms' discretionary accruals are systematically positively affected by an increase in bank loans, although they are negatively affected by the credit worthiness rating assigned to the borrowers. We find that the monitoring role of the banking system with regard to the adoption of discretionary accruals is effective only when the loan is very large. This paper may have implications for policy-makers as it contributes to the understanding of the shortcomings of the banking regulatory system. This is an extremely relevant issue since the excessive amount of non-performing loans held by Italian banks recently threatened the stability of the European Banking Union as a whole.

Is internal and external mechanism of governance enriching the performance of the banking sector of Pakistan?

2017 ◽  
Vol 17 (4) ◽  
pp. 629-642 ◽  
Author(s):  
Sundas Sohail ◽  
Farhat Rasul ◽  
Ummara Fatima
Keyword(s):  
Corporate Governance ◽  
Banking Sector ◽  
Good Governance ◽  
Random Effect ◽  
Random Effect Model ◽  
General Meeting ◽  
Governance Structure ◽  
Board Structure ◽  
Content Type ◽  
The Impact

Purpose The purpose of this study is to explore how governance mechanisms (internal and external) enhance the performance of the return on asset (ROA), return on equity (ROE), earning per share (EPS) and dividend payout ratios (DP) of the banks of Pakistan. The study incorporates not only the internal factors of governance (board size, out-ratio, annual general meeting, managerial ownership, institutional ownership, block holder stock ownership and financial transparency) but also the external factors (legal infrastructure and protection of minority shareholders, and the market for corporate control). Design/methodology/approach The sample size of the study consists of 30 banks (public, private and specialized) listed at the Pakistan Stock Exchange (PSE) for the period 2008-2014. The panel data techniques (fixed or random effect model) have been used for the empirical analysis after verification by Hausman (1978) test. Findings The results revealed that not only do the internal mechanisms of governance enhance the performance of the banking sector of Pakistan but external governance also plays a substantial role in enriching the performance. The findings conclude that for a good governance structure, both internal and external mechanisms are equally important, to accelerate the performance of the banking sector. Research limitations/implications Internal and external mechanisms of corporate governance can also be checked by adding some more variables (ownership i.e. foreign, female and family as internal and auditor as external), but they are not added in this work due to data unavailability. Practical implications The study contributes to the literature and could be useful for the policy makers who need to force banks to mandate codes of governance through which they can create an efficient board structure and augment the performance. The investments from different forms of ownership can be accelerated if they follow the codes properly. Social implications The study facilitates the bankers in incorporating sound codes of corporate governance to enhance the performance of the banks. Originality/value This work is unique as no one has explored the impact of external mechanism of governance on the performance of the banking sector of Pakistan.

scholarly journals Impact of Corporate Political Connections on Cost of Equity: A Dynamic Panel Approach

2021 ◽  
Vol 13 (3) ◽  
pp. 45-65
Author(s):  
Aamir Amanat ◽  
Ahmed Imran Hunjra ◽  
Salman Ali Qureshi ◽  
Muhammad Hanif ◽  
Muhammad Razzaq Athar
Keyword(s):  
Lower Cost ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Equity Capital ◽  
Political Connections ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Financing Cost ◽  
Corporate Political Strategies ◽  
The Impact

We analyze the impact of corporate political connections on the cost of equity of non-financial firms listed at the Pakistan Stock Exchange. We extract data from the DataStream and Election Commission of Pakistan for the years 2001 to 2018. The Generalized Method of Moments is used for data analysis. This research finds that firms use political connections to enjoy a lower cost of equity capital. Further, firms with strong ties to political power obtain more benefits on financing cost as compared to non-connected firms. Besides, we also find that firms affiliated with a large business group enjoy a lower cost of equity than non-affiliated connected firms. The findings may be helpful for regulators to formulate suitable policies concerning the use of corporate political strategies and to assist unconnected and non-affiliated firms to access finance easily.

Does opening high-speed railways affect the cost of debt financing? A quasi-natural experiment

2020 ◽  
Vol 10 (4) ◽  
pp. 473-496
Author(s):  
Hongling Guo ◽  
Keping Wu
Keyword(s):  
High Speed ◽  
Geographical Location ◽  
Debt Financing ◽  
Cost Of Debt ◽  
High Speed Railway ◽  
Content Type ◽  
Financing Cost ◽  
Debt Market ◽  
The Cost ◽  
The Impact

PurposeThis study aims to investigate how opening high-speed railways affects the cost of debt financing based on China's background.Design/methodology/approachUsing panel data on Chinese listed firms from 2008 to 2017, this study constructs a quasi-natural experiment and adopts a difference-in-difference model with multiple time periods to empirically examine the relation between the high-speed railway openings and debt financing cost.FindingsOur results show that opening high-speed railways reduces the cost of debt financing, and this negative correlation is more significant in non-state firms, firms with weaker internal control, and firms that hire non-Big Four auditors. Besides, we explore the impact mechanisms and find that opening high-speed railways improves analyst attention, institutional investor participation, and information disclosure quality, which in turn lowers the cost of debt financing.Research limitations/implicationsThe results imply that the opening of high-speed railways helps to alleviate the information asymmetry and adverse selection between firms and creditors and ultimately reduces the cost of corporate debt financing.Practical implicationsThis paper can inform firms and stakeholders about the impact of opening high-speed railways on debt financing cost: it improves the information environment, reduces the geographical location restrictions of debt financing, ensures the reasonable pricing of corporate debt, and thus promotes the healthy and sound development of the debt market.Originality/valueThis paper provides theoretical support and empirical evidence for the impact of infrastructure construction on the information environment of the debt market in China, which enriches the research on the “high-speed railway economy.” In addition, as an exogenous event, the opening of high-speed railways instantly shortens the time distance between firms and external stakeholders, which gives us a natural environment to conduct empirical research, thus providing a new perspective for financial research on firms' geographical location.

scholarly journals Assessment of Earnings Conservatism in Malaysian Financial Reporting

2021 ◽  
Author(s):  
◽  
Khairul Anuar Kamarudin
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Family Firms ◽  
Good Governance ◽  
The United States ◽  
Systematic Difference ◽  
Cultural Issues ◽  
Corporate Board ◽  
Short Period ◽  
Significant Difference

<p><b>This study examines four influences on earnings conservatism of financial reporting in Malaysia. The study employs a sample of 3,126 firm-year observations of Malaysian listed companies over the period 2003 to 2008 and measures conservatism by the asymmetric timeliness of earnings measure due to Basu (1997). First, the study assesses the degree of earnings conservatism in reporting during the period following the institutional reforms which started after the 1997 Asian financial crisis. The results suggest that conservatism has increased with the reforms which contrasts with the findings of Ball et al. (2003) who find no evidence of earnings conservatism in Malaysia. Second, this study investigates the effect of the adoption of IFRS on the level of earnings conservatism. The results show no systematic difference in the level of earnings conservatism for the short period of one to two years before and after the adoption, suggesting that conservatism may not be specific to any particular set of accounting standards. Third, this study examines the effect of ownership structure on earnings conservatism. Reporting by family firms and widely-held firms exhibits earnings conservatism, but this is not the case for state-controlled firms. The analysis also shows no significant difference between the levels of earnings conservatism for family firms and widely-held firms. Additional tests show that family firms that are strategically controlled by a family, that is, where a member of the controlling family acts as CEO and chairman of the corporate board, report significantly higher earnings conservatism than other family firms.</b></p> <p>Finally, the study examines the link between corporate governance and earnings conservatism. Employing a comprehensive set of corporate governance variables, this study does not find any evidence to link corporate governance and earnings conservatism. This result is contrary to the evidence from developed markets, such as the United States and the United Kingdom, where firms with good governance are more timely in recognising bad news. This raises the possibility that the different ownership structures in Malaysia make corporate governance reforms less important. However, this suggestion is subject to environmental and cultural issues that have not been addressed in this study.</p>

scholarly journals The factors affecting accessibility to credit capital of small and medium enterprises in Vietnam

2019 ◽  
Vol 15 (6) ◽  
pp. 15-25
Author(s):  
Phung The Dong ◽  
Nguyen Thi Hong Nham
Keyword(s):  
Interest Rates ◽  
Small And Medium Enterprises ◽  
Probit Model ◽  
Bank Loans ◽  
Bank Loan ◽  
Factors Affecting ◽  
Business Loan ◽  
The Government ◽  
Medium Enterprises ◽  
The Impact

The difficulty in accessing loans is one of the major barriers to the development of small and medium enterprises (SMEs) in Vietnam. Low accessibility to capital forces SMEs to spend both official and unofficial costs in order to obtain loans, and/or to access the unofficial market at higher interest rates, thereby increasing cost of production of enterprises. Studies suggest that the determinants of bank loan processing through which small and medium enterprises can access official loans include: characteristics of enterprises; indicators, reflecting the performance of enterprises; characteristics of loans; characteristics of enterprises, enterprise owners; geographical position of enterprises; the creditworthiness of enterprises and the role of the network.Purpose of the study.The aim of this paper is the quantitative analysis of the factors, affecting accessibility to credit capital of small and medium enterprises in Vietnam.Materials and methods.This study was conducted on the basis of a survey in December 2017. The survey includes 301 enterprises in Hanoi city. Selected enterprises are also enterprises, surveyed in the annual enterprise survey by the General Statistics Office of Vietnam. This paper uses the Probit and Logit regression approach to estimate the impact of factors, affecting the disbursement probability of a loan of an enterprise. The number of SMEs accounts for 56.69% of the samples. The number of enterprises, applying for a bank loan accounts for 58.4% of the total samples, of which the percentage of disbursed loans for SMEs accounts for only 47.3%. For enterprises without a bank loan, eliminating the reasons for the lack of demand and unwish to be in debt, the main reasons not to access bank loans are high interest rates, complicated loan procedures and insufficient collateral.Results.The results obtained from the Logistic and Probit models show that the estimated coefficients are statistically significant, affecting the probability of taking a business loan, accepted by financial institutions. Although the coefficients, estimated from Logistics model are larger than those estimated from the Probit model, the estimated results show that the direction of impact of the variables in two estimation techniques gives quite similar results.Conclusion.Based on the results of this study, the Government of Vietnam should implement policies to support SMEs in the direction of improving their access to capital. The credit institutions should design products and services suitable to the characteristics of SMEs in Vietnam.

scholarly journals Aspects of Corporate Governance in Developing Countries

2021 ◽  
Vol 10 (1) ◽  
pp. 1-8
Author(s):  
MUHAMMAD MAJID MAHMOOD BAGRAM ◽  
AKBAR ABBAS BANGASH ◽  
ZARA KIRAN
Keyword(s):  
Developing Countries ◽  
Corporate Governance ◽  
Good Governance ◽  
The Political ◽  
Economic Progress ◽  
Research Article ◽  
Key Dimensions ◽  
Political Governance ◽  
The Impact ◽  
The Relationship

This research article throws light on the impacts of Corporate Governance in the developing countries particularly to Pakistan, Mexico, Brazil and Bangladesh. The paper starts with discussions on how and when there is an alteration in different features of company administration during the practice of financial advancing in Mexico. It encompasses ultimately the impact of transforms in the replica of business control regarding the expansion of the state e.g. enlargement in purchaser commodities in favour of central group buyers, growth revelation through home firms, fewer help in favour of community public schemes etc. The authors of this research article assert that problems of governance in Bangladesh are at the helm of affairs of its economy. We observed the data regarding governance of Bangladesh of period 1996-2004 and analysed these various governance dimensions out of the aforesaid economic progress analysis the key dimensions have been divulged. These are political governance, institution dimensions and technology dimensions. The political governance in Bangladesh has been paralysed from 1998 to 2004. When the performance of governance in Bangladesh become functional it had positively affected the economy. We cannot say the importance of company authority within growing kingdoms. The commercial domination might include a slightly different system than prevalent in the European countries and North America due to insufficient infrastructure and destroy governmental policy interventionism. We also throw light on important features of Brazilian firm’s changes after the application for communal power exercises. After making a deliberation on the implementation of joint supremacy in Brazil, Mexico, and Bangladesh and subsequently we have emphasized the impact of Corporate Governance and proper growth in Pakistan. The relationship between good governance and proper growth is proportional generally. Having studied different scenarios of the countries under remonstration, the writers have reached the conclusion that good governance is an essential component for upgrading the economies of developing countries because of these reasons it may be said that high-quality control leads towards a country obtain sky-scraping and frequent monetary increase through establishment of congenial environment for savings and investment, entrepreneurship, yielding implement upon manufacturers, generating constancy among marketplace, expansion in souks though elimination of hurdles/barriers towards inner job and progress over the competitors. Keywords: Business Control, Economic Development and Proper Growth.

Earthly Reward to the Religious: Religiosity and the Costs of Public and Private Debt

2018 ◽  
Vol 53 (5) ◽  
pp. 2131-2160 ◽  
Author(s):  
Feng Jiang ◽  
Kose John ◽  
C. Wei Li ◽  
Yiming Qian
Keyword(s):  
Corporate Culture ◽  
Credit Ratings ◽  
Explanatory Power ◽  
Bank Loans ◽  
Soft Information ◽  
Cost Of Debt ◽  
Private Debt ◽  
Public And Private ◽  
The Cost ◽  
The Impact

We document that a firm’s culture, specifically, its religiosity, affects its cost of debt. Firms in higher-religiosity counties have higher credit ratings and lower debt costs. The impact of religiosity is stronger for firms with greater information asymmetry and during recessions. Further, religiosity has additional explanatory power for the cost of bank loans (but not the cost of public bonds) beyond its impact through ratings. This supports the argument that banks have superior abilities in pricing soft information, such as corporate culture. Finally, the impact of religiosity is stronger when the lender is a small bank.

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