Browsing by Subject "G30"

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  • Francis, Bill; Hasan, Iftekhar; Song, Liang (2012)
    Bank of Finland Research Discussion Papers 12/2012
    Published in Journal of Financial Research, Volume 35, Issue 3, October 2012: 343-374
    We investigate how borrowers corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level corporate governance are substitutes in writing and enforcing financial contracts. We also find that the distinctiveness of borrowers characteristics affect the relation between firm-level corporate governance and loan contracting terms. Our findings are robust, irrespective of types of regression methods and specifications. JEL Classification: G20, G30, G31, G34, G38.
  • He, Qing; Huang, Jiyuan; Li, Dongxu; Lu, Liping (2016)
    BOFIT Discussion Papers 19/2016
    ​This paper examines the governance role of banks in replacement of underperforming CEOs in firms listed on Chinese stock exchanges. Under most circumstances, the findings suggest that the presence of outstanding loans does not increase the probability that a poorly performing CEO will be forced out and replaced. However, there is a positive and significant effect if the under-performing firm relies heavily on secured and short-term bank lending. Bank loans increase the likelihood of a forced CEO turnover in private firms, especially where joint-equity banks serve as the main lenders to the firm. There is no similar increase in the probability of a CEO turnover for state-owned firms or firms that borrow mainly from state-owned banks. Thus, where state ownership of banks and listed firms implies inefficiency or reluctance on monitoring borrower performance, there is an opportunity to improve loan contract arrangements to improve the mon-itoring role of lending banks.
  • Newton, David P.; Ongena, Steven; Xie, Ru; Zhao, Binru (2022)
    BOFIT Discussion Papers 5/2022
    Is bank- versus market-based financing different in its attitudes towards Environmental, Social, and Governance (ESG) risk? Using a novel sample covering 3,783 U.S. public firms from 2007 to 2020, we study how firm-level ESG risk affects its financing outcomes. We find that companies with higher ESG risk borrow less from banks than from markets, potentially to avoid bank monitoring and scrutiny. The Social and Governance components, in particular, matter. Furthermore, firms suffering higher numbers of negative ESG reputation shocks are less likely to continue to rely on bank credit in response to lenders' threats to end the lending arrangements. Finally, our results indicate that firms' ESG risk reduces after borrowing from banks but increases after bond issuance, suggesting that banks are more effective than public bond markets in shaping borrowers' ESG performance.
  • Hasan, Iftekhar; Minnick, Kristina; Raman, Kartik (2020)
    Journal of Corporate Finance June ; 2020
    Using detailed loan level data, we examine bank lending to corporate customers relying on principal suppliers. Customers experience larger loan spreads, higher intensity of covenants and greater likelihood of requiring collateral when they depend more on the principal supplier for inputs. The positive association between the customer’s loan spread and its dependence on the principal supplier is less pronounced when the bank has a prior loan outstanding with the principal supplier, and when the bank has higher market share in the industry. Longer relationships between the customer and its principal supplier, and between the bank and the principal supplier, mitigate lending constraints. The evidence is consistent with corporate suppliers serving as an informational bridge between the lender and the customer.
  • Delis, Manthos D.; Hasan, Iftekhar; Ongena, Steven (2020)
    Journal of Financial Economics 2 ; May
    Published in Bank of Finland Discussion Paper 18/2018 "Democratic development and credit".
    Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizable negative effect on loan spreads: a 1-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.
  • Delis, Manthos D.; Hasan, Iftekhar; Ongena, Steven (2018)
    Bank of Finland Research Discussion Papers 18/2018
    Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizeable negative effect on loan spreads: a one-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.
  • Fang, Yiwei; Francis, Bill; Hasan, Iftekhar (2018)
    Journal of Corporate Finance February ; 2018
    Prior research has demonstrated that CEOs learn privileged information from their social connections. Going beyond the importance of the number of social ties in a CEO's social network, this paper studies the value generated from a diverse social environment. We construct an index of social-network heterogeneity (SNH) that captures the extent to which CEOs are connected to people of different demographic attributes and skill sets. We find that higher CEO SNH leads to greater firm value through the channels of better corporate innovation and diversified M&As. Overall, the evidence suggests that CEOs' exposure to human diversity enhances social learning and creates greater growth opportunities for firms.
  • Francis, Bill; Hasan, Iftekhar; Wu, Qiang (2012)
    Bank of Finland Research Discussion Papers 11/2012
    Published in Review of Financial Economics, Volume 21, Issue 2, April 2012: 39-52
    This study uses the current financial crisis as a quasi-experiment to examine whether and to what extent corporate boards affect the performance of firms. Using cumulative stock returns over the crisis to measure of firm performance, we find that board independence, as traditionally defined, does not significantly affect firm performance. However, when we re-define independent directors as outside directors who are less connected with current CEOs, a measure we call true independence, there is a positive and significant relationship between this measure and firm performance. Second, outside financial experts are important for firm performance. Third, board meeting frequencies, director attendance behaviors, and director age also affect firm performance during the crisis. Overall, our results suggest that firm performance during a crisis is a function of firm-level differences in corporate boards. JEL Classification: G01; G30; G34 Keywords: Financial crisis; Boards of directors; Firm performance; True independence
  • Pessarossi, Pierre; Weill, Laurent (2012)
    BOFIT Discussion Papers 21/2012
    Published in Journal of Economics and Business, Volume 70, November–December 2013, Pages 27–42
    We study the consequences of CEO turnover announcements on the stock prices of firms in China, where most listed firms remain majority-owned by the state. Our proposition is that state ownership may affect stock market reaction to CEO replacement because state-owned firms often pursue multiple, potentially contradictory, objectives, i.e. economic performance and social objectives. Applying standard event study methodology to a sample of 1,094 announcements from 2002 to 2010, we find that CEO turnover typically produces a positive stock market reaction. The reaction is significantly positive, however, only for enterprises owned by the central government, and not significant for enterprises owned by local governments or privately owned enterprises. These results suggest that a CEO turnover in a central state-owned enterprise signals a renewed commitment to the economic performance objective by state officials. The small size of CEO labor market suggests that other shareholders have a relatively small pool of CEO talent to proceed to managerial improvement when a CEO turnover takes place. JEL Classification: G30; M51; P34; O16 Keywords: CEO turnover; corporate governance; state ownership; China; event study
  • Bai, Yiyi; Dang, Tri Vi; He, Qing; Lu, Liping (2018)
    BOFIT Discussion Papers 13/2018
    We examine China’s June 2013 liquidity crunch as a negative shock to banks and analyze the wealth effects on exchange-listed firms. Our findings suggest that liquidity shocks to financial institutions negatively impact borrower performance, particularly borrowers reporting outstanding loans at the end of 2012. Stock valuations of firms with long-term bank relationships, however, outperform the market and experience smaller subsequent declines in investment than peers lacking solid banking relationships. This effect is the strongest for firms that enjoy good relations with China’s large state-owned banks or foreign banks, and weakest for firms whose connections are solely with local banks. We document a positive correlation between the stock performances of firms and the stock performances of lender banks and the likelihood of lender banks operating as net lenders in the interbank market. These results suggest that banks transmit liquidity shocks to their borrowing firms and that a long-term bank-firm relationship may mitigate the negative effects of a liquidity shock.
  • Hao, Liang; Rong, Wang; Haikun, Zhu (2020)
    BOFIT Discussion Papers 20/2020
    Economic activities have always been organized around certain ideologies, yet little is known about how ideology shapes corporate behavior and how it is different from other political forces. We investigate the impact of politicians’ ideology on corporate policies by exploring a unique setting of ideological change in China from Mao’s ideology to Deng’s around 1978. Using textual analysis based on keywords in People’s Daily, we find a discontinuity in ideological exposure among people who later became city mayors. Those who were at least 18 years old in 1978 and had joined the Chinese Communist Party (CCP) are more likely to have adopted Mao’s ideology, and those who did not join by 1978, due to age limit, but joined soon thereafter were more likely to have adopted Deng’s ideology. This ideological difference has had an enduring effect on contemporary firm and city policies. Firms in cities governed by mayors with Mao’s ideology have made more social contributions, lowered within-firm pay inequality, and pursued less internationalization than those with Deng’s. These effects are stronger in firms with political connections, less state ownership, and more government subsidies as well as in regions that are more market-oriented and not “revolutionary bases.” Our results are robust to OLS regressions with various pair fixed effects besides regression discontinuity. We further find that corporate policies promoted by Mao’s ideology are associated with slower firm growth but greater stakeholder engagement.
  • Ru, Hong; Zou, Kunru (2020)
    BOFIT Discussion Papers 21/2020
    This paper investigates how politicians’ patronage connections affect privatizations in China. The connections to top political leaders (i.e., Central Committee of the Communist Party of China) make local politicians engage more in rent-seeking by selling state-owned enterprises (SOEs) at substantial discounts. These connected local politicians are also more protected in anti-corruption investigations, thus extracting more rents by selling SOE assets at substantial discounts. Consequently, the privatizations conducted by the local politicians with patronage connections achieve significantly lower gains in efficiency and performance. To identify the role of patronage connection in privatization, we use the mandatory retirement age cut-offs of Central Committee members in the regression discontinuity design. We find drops in price discounts of privatization deals and jumps in efficiency for privatized SOEs when local politicians lose connections to Central Committee members around the retirement age cut-offs.
  • Fang, Yiwei; Francis, Bill; Hasan, Iftekhar (2012)
    Bank of Finland Research Discussion Papers 26/2012
    This paper examines through various channels the effects of CEO social network heterogeneity on firm value. We construct four measures of heterogeneity based on demographic attributes, intellectual backgrounds, professional experience, and geographical exposures of individuals in the CEO social network. We find that CEO social network heterogeneity leads to higher Tobin's Q of firms. Greater CEO social network heterogeneity also leads to: (i) more innovation, (ii) more foreign sales growth, (iii) higher investment sensitivity to Tobin's Q, and (iv) better M&A performance. Overall, our results indicate that CEO social network heterogeneity is an aspect of CEO social capital and soft skills that deserves the attention of shareholders. Keywords: CEO, social networks, corporate finance policy decisions, firm value JEL classification: G32, G30, D71, Z10
  • Shumilov, Andrei (2008)
    BOFIT Discussion Papers 24/2008
    Transition economies like Russia lack properly functioning financial markets and institu-tions, which results in severe agency and information problems. Business groups in such markets have the potential to offer benefits to member firms, but they also may destroy value. Using a unique database on membership in Russian business groups, we analyze the relationship between group affiliation and firm performance on the basis of a large panel of manufacturing firms for the period 1999-2002. We find that group membership has a posi-tive effect on productive efficiency, but gains from improved productivity in group affili-ates do not adequately translate into higher profitability. This is consistent with the expro-priation hypothesis, according to which controlling owners of groups extract private bene-fits by siphoning profits from their members. Among the different group categories deli-neated by type of controlling owner, the extent of profit dissipation is especially large in groups controlled by private domestic owners, who face a greater risk of possible future expropriation of property. Finally, we examine two potential sources of benefits of mem-bership in business groups: mutual insurance among affiliated firms and preferential treat-ment from the state via subsidies and tolerated tax arrears. We find that, during the period studied, groups neither provided mutual insurance nor did they receive larger support from the state than unaffiliated firms. Together with findings from the previous literature indi-cating that, prior to the 1998 financial crisis, group firms benefited from more efficient al-location of capital within groups than in the rest of the economy but not after the crisis, our results suggest that the advantages of group membership recede as the economic and insti-tutional environment gradually improves. Keywords: business groups, firm performance, transition economy, Russia JEL classification: G30, L20
  • Gu, Xian; Hasan, Iftekhar; Zhu, Yun (Elsevier, 2019)
    Journal of Banking & Finance February
    This paper investigates how political influence affects firms’ financial flexibility and speed of adjustment toward target leverage ratios. We find that at the macro level, firms in environments with high political advantages, proxied by provincial affiliations with heads of state as well as political status and party rank of provincial leaders, adjust faster. At the micro level, firms that are state-owned, have CPC members as executives, or bear low exposure to changes in political uncertainty adjust faster. When interacted, the micro-level political factors have more significant impact.
  • Francis, Bill; Hasan, Iftekhar; Mani, Sureshbabu; Ye, Pengfei (2016)
    Bank of Finland Research Discussion Papers 6/2016
    Published in Journal of Financial Economics 2016 ; 122 ; 1 ;
    ​This study examines the performance impact of the relative quality of a CEO’s compensation peers (peers selected to determine a CEO’s overall compensation) and bonus peers (peers selected to determine a CEO’s relative-performance-based bonus). We use the fraction of peers with greater managerial ability scores (Demerjian, Lev, and McVay, 2012) than the reporting firm to measure this CEO’s relative peer quality (RPQ). We find that firms with higher RPQ tend to earn superior risk-adjusted stock returns and experience higher profitability growth compared with firms that have lower RPQ. These results cannot be fully explained by a CEO’s power, compensation level, intrinsic talent, nor by the board’s possible motivation to use peers to signal a firm’s prospect. Learning among peers and the increased incentive to work harder induced by the peer-based tournament, however, might contribute to RPQ’s positive performance effect. Preliminary evidence also shows that high RPQ is not associated with increased earnings management or increased risk-taking behaviors.
  • Leventis, Stergios; Hasan, Iftekhar; Dedoulis, Emmanouil (2013)
    Bank of Finland Research Discussion Papers 13/2013
    Published in International Review of Financial Analysis, Volume 29, September 2013, Pages 152-165
    In this paper we provide evidence for the effects of social norms on audit pricing by studying companies belonging to the alcohol, firearms, gambling, military, nuclear power, and tobacco industries, which are often described as "sin" companies. We hypothesize that the disparities between "sin" firms operations and prevailing social norms create an adverse context which heightens the client's business risk assessment by auditors and is, thereby, reflected in the pricing decisions for audit and consulting services. Having controlled for the impact of variables relating to client attributes, auditor attributes and engagement attributes, we demonstrate that audit firms charge significantly higher audit and consulting fees to companies that deviate from prevailing social norms. Additionally, we show that audit pricing levels within the "sin" group depend both on prevailing political views and on the level of "vice" exhibited by "sin" companies. Keywords: Social norms, audit pricing, controversial industries, sin companies. JEL Classification: G21, G30, G34, G38, M41.
  • Ambrocio, Gene; Gu, Xian; Hasan, Iftekhar; Politsidis, Panagiotis N. (2021)
    Journal of International Money and Finance February ; 2022
    This paper investigates whether state-to-state political ties with the United States affect the pricing of global syndicated loans. We find that a one-standard-deviation improvement in state political ties between the U.S. and the government of a borrower’s home country is associated with a 14.7 basis points lower loan spread, shaving off about 11.8 million USD in interest payments over the duration of the average loan for borrowers. Results also show that the effect of political ties is stronger for narrower and more concentrated loan syndicates, when lead arrangers are U.S. banks, during periods in which the U.S. is engaged in armed conflicts, when the U.S. president belongs to the Republican Party, and for borrowers with better balance sheets and prior lending relationships. Notably, not all firms benefit equally, as cross-listed firms and firms in countries with strong institutional quality and ability to attract institutional investors are much less affected by political ties.
  • Nivorozhkin, Eugene (2003)
    BOFIT Discussion Papers 2/2003
    Published in Economics of Planning vol 37, no 1 (2004), pp. 25-45
    This paper uses a dynamic unrestricted capital structure model to examine the determinants of the private companies' target financial leverage and the speed of adjustment to it in two transition economies, the Czech Republic and Bulgaria.We explicitly model the adjustment of companies' leverage to a target leverage, and this target leverage is itself explained by a set of factors.The panel data methodology combines cross-section and time-series information.The results indicate that the Bulgarian corporate credit markets were less supply constrained than those of the Czech Republic during the period under investigation.Bulgarian companies adjusted much faster to the target leverage than Czech firms.The speed of adjustment related positively to the distance between target and observed ratio for Bulgarian companies while the relationship was neutral for Czech companies.The conservative policies of Czech banks and the exposure control were likely responsible for the slower adjustment among the larger companies while the opposite were true for Bulgarian banks and companies. G30, G32, O12, O52 capital structure; leverage; dynamic adjustment model; the Czech Republic; Bulgaria
  • Ayala, Diana; Nedeljkovic, Milan; Saborowski, Christian (2016)
    BOFIT Discussion Papers 8/2016
    ​This paper studies the determinants of shifts in debt composition among emerging market non-financial corporates. We show that institutions and macro fundamentals create an enabling environment for bond market development. During the recent boom episode, however, global cyclical factors accounted for most of the variation of bond shares in total corporate debt. The sensitivity to global factors appears to vary with relative bond market size rather than local fundamentals. Foreign bank linkages help explain why bond markets increasingly substituted for banks in channeling liquidity to EMs. Our results highlight the risk of capital flow reversal in EMs that benefited from the upturn in the global financial cycle mostly due to their liquid markets rather than strong fundamentals.