Corporate legal structure and bank loan spread

Sikochi, Anywhere

doi:10.1016/j.jcorpfin.2020.101656

Cited by 9 publications

(8 citation statements)

References 38 publications

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“…Despite the potential positive effect of diversification, the complex structure and high information asymmetry of diversified firms might increase their risk exposure ( Olibe et al., 2008 ). Consistent with this, Sikochi (2020) documents that firms with complex corporate structures pay higher loan spreads. Managers of diversified firms also have more discretion over resource allocation in business segments that enable them to engage in self-serving activities ( Aivazian et al., 2015 ; Fuente and Velasco, 2020 ; Li et al., 2011 ).…”

Section: Introductionmentioning

confidence: 58%

“…First, it adds to the results of studies on the debt market effects of COVID-19 exposure (e.g., Acharya and Steffen, 2020 ; Haddad et al., 2021 ; Kargar et al., 2021 ; Nozawa and Qiu, 2021 ), particularly those documenting that the pandemic has increased borrowing costs ( Arnold and Rhodes, 2021 ; Hasan et al., 2021 ), by providing novel evidence that the increase in borrowing costs for COVID-19-exposed firms depends on the firms’ diversification. Second, it contributes to the contradicting evidence of prior studies on the effect of diversification on borrowing costs (e.g., Aivazian et al., 2015 ; Li et al., 2011 ; Sikochi, 2020 ) by documenting that, under extreme market conditions and in the presence of external capital market fractions, internal capital markets of diversified firms become valuable. The study's findings also have policy implications and are essential for building a complete picture of the effect of COVID-19 on the costs of borrowing.…”

Section: Introductionmentioning

confidence: 88%

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COVID-19 and the cost of bond debt: The role of corporate diversification

Almaghrabi

2022

Finance Research Letters

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We examine whether diversification is valuable in reducing the cost of debt for COVID-19-exposed firms. We find that although the pandemic has increased firms’ borrowing costs, both business and geographic diversifications reduce bond yield spreads for COVID-19-exposed firms. This highlights that the coinsurance features and enhanced investment opportunities of diversified firms are valuable during difficult times. We also find that unrelated diversification and diversification in countries with low COVID-19 uncertainty have a more substantial effect on reducing the bond spreads of COVID-19-exposed firms. These findings are essential for building a complete picture of the effect of COVID-19 on borrowing costs.

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Section: Introductionmentioning

confidence: 58%

Section: Introductionmentioning

confidence: 88%

COVID-19 and the cost of bond debt: The role of corporate diversification

Almaghrabi

2022

Finance Research Letters

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“…The literature has proposed different aspects of firm complexity, including business segment complexity, geographical complexity, ownership complexity and structural complexity [7]. Previous studies have linked these aspects to return predictability (Cohen and Lou, 2012), parent's and subsidiaries' riskiness (Argim on and Rodr ıguez-Moreno, 2020), CEO labor market (Berry et al, 2006), board compensation (Bushman et al, 2004), firm value (Garc ıa-Meca and Pedro S anchez-Ballesta, 2011), knowledge performance and innovation (Pertusa-Ortega et al, 2010;Altomonte and Rungi, 2013) and borrowing costs (Li et al, 2011;Sikochi, 2020). In the case of structural complexity, most of these studies simply measure it by the number of subsidiaries (Cetorelli and Goldberg, 2014;Argim on and Rodr ıguez-Moreno, 2020;Sikochi, 2020).…”

Section: Firm's Hierarchical Complexity and Crash Riskmentioning

confidence: 99%

“…, 2011; Sikochi, 2020). In the case of structural complexity, most of these studies simply measure it by the number of subsidiaries (Cetorelli and Goldberg, 2014; Argimón and Rodríguez-Moreno, 2020; Sikochi, 2020). This measure, however, does not reflect the hierarchical nature of the organization.…”

Section: Introductionmentioning

confidence: 98%

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Can a firm's hierarchical complexity affect its stock price behavior? Evidence from stock price crash risk

Phan,

Zurbruegg

2023

IJMF

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PurposeThis paper examines how a firm's hierarchical complexity, which is determined by the way it organizes its subsidiaries across the hierarchical levels, can impact its stock price crash risk.Design/methodology/approachThe authors employ a measure of hierarchical complexity that captures the depth and breadth of how subsidiaries are organized within a firm. This measure is calculated using information about firms' subsidiaries extracted from the Bureau van Dijk (BvD) database that allows the authors to construct each firm's hierarchical structure. The data sample includes 2,461 USA firms for the period from 2012 to 2017 (11,006 firm-year observations). Univariate tests and panel regression are used for the main analysis. Two-stage-least-squares (2SLS) instrumental variable regression and various other tests are employed for robustness check.FindingsThe results show a positive relationship between hierarchical complexity and stock price crash risk. This relationship is amplified in firms with a greater number of subsidiaries that are hierarchically distanced from the parent company as well as in firms with a greater number of foreign subsidiaries in countries with weaker rule of law.Originality/valueThis paper is the first to investigate the impact hierarchical complexity has on crash risk. The results highlight the role that a firm's organizational structure can have on asset pricing behavior.

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Do creditors care about greening in corporations? Do contingencies matter?

Karaman,

Gerged,

Uyar

2024

Int. J Fin Econ

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This study assesses whether creditors consider ecological practices (i.e., resource usage, emissions, and eco‐innovation) when setting interest rates during loan decisions and whether firm‐level contingencies play a role in this relationship. Based on a sample of 38,127 firm‐year observations of non‐financial firms operating worldwide between 2004 and 2019, our evidence indicates that eco‐friendly practices have no significant direct effect on the cost of debt. Thus, we consider other theoretically expected channels that moderate this link. Notably, profitability and board gender diversity significantly moderate the relationship between eco‐friendly practices and the cost of debt. Further investigation reveals interesting associations between low and high governance systems, low and high financial development environments, code law versus common law systems, and polluting versus non‐polluting sectors. We suggest theoretical and practical implications by which firms can reap greater benefits from environmental engagement.

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Corporate legal structure and bank loan spread

Cited by 9 publications

References 38 publications

COVID-19 and the cost of bond debt: The role of corporate diversification

COVID-19 and the cost of bond debt: The role of corporate diversification

Can a firm's hierarchical complexity affect its stock price behavior? Evidence from stock price crash risk

Do creditors care about greening in corporations? Do contingencies matter?

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