Does bank ownership increase firm value? Evidence from China

Lin, Xiaopei; Zhang, Yi; Zhu, Ning

doi:10.1016/j.jimonfin.2008.12.015

Cited by 62 publications

(64 citation statements)

References 34 publications

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“…Our findings also confirm that dual holding is less likely to add value for SOEs, which is consistent with the evidence from other emerging markets (Fok et al, 2004;Lin et al, 2009), while dual holding is more likely to increase value for non-SOEs, which is similar to what occurs in developed markets. Our investigation complements the notion that dual holding can be a double-edged sword in emerging markets.…”

Section: Introductionsupporting

confidence: 91%

“…Soft lending then encourages SOEs with dual holding to invest more into building their empires, regardless of whether they have good investment opportunities; this reduces their investment efficiency (Firth et al, 2008;Lin et al, 2009). In this sense we conjecture that dual holding reduces the monitoring of firm investment, which results in less efficient investment for SOEs because dual holding increases the chance of collusion between banks' and firms' managers, who tend in this situation to pursue empire building rather than maximize value.…”

Section: Hypothesis Developmentmentioning

confidence: 95%

“…In principle, the conflicts of interest and information asymmetry between shareholders and creditors could be mitigated when banks are also the shareholders of the same firms (Kroszner and Strahan, 2001); the mitigation of these conflicts could lead to easier access to bank loans (Kang and Shivdasani, 1995;Barth et al, 2006;Lin et al, 2009) and lower cost of loans (Jiang et al, 2010). China is identified as having an underdeveloped financial system and lacking a public bond market; banks are the main providers of capital, while bank credit is scarce (Cull and Xu, 2000;Firth et al, 2008).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…Lin et al (2009) find that bank ownership increases the tendency for companies to bank capital access, but reduces operating performance because the monitoring of the firms' investment is compromised; Luo et al (2011) examine the way bank ownership affects firm performance through corporate executive perquisites (perks). In a departure from these papers, the current study provides direct evidence of the effect of dual holding on banks' lending decisions and firms' investment policies.…”

Section: Introductionmentioning

confidence: 99%

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Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China

Pan

Tian

2015

Journal of Banking & Finance

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This study investigates the effect of banks' dual holding on bank lending and firms' investment decisions using a sample of listed firms in China. We find that dual holding leads to easier access to bank loans, a result that is more pronounced for non-state-owned enterprises (non-SOEs) than SOEs. We also find that dual holding distorts banks' lending decisions and harms the investment efficiency for SOEs, while resulting in optimal lending decisions and enhanced investment efficiency for non-SOEs. For non-SOEs, further analysis suggests that optimal lending decisions and efficient investment can be achieved for firms with higher ownership concentration, and firms in which the family and foreign investors are the controlling shareholders. We argue that, in emerging markets, whether a bank plays a monitoring role by directly holding the debt and equity claims of companies relies heavily on whether the potential collusion between firm executives and bank managers can be averted, which in turn is determined by the firms' governance framework and ownership structure. AbstractThis study investigates the effect of banks' dual holding on bank lending and firms' investment decisions using a sample of listed firms in China. We find that dual holding leads to easier access to bank loans, a result that is more pronounced for non-state-owned enterprises (non-SOEs) than SOEs. We also find that dual holding distorts banks' lending decisions and harms the investment efficiency for SOEs, while resulting in optimal lending decisions and enhanced investment efficiency for non-SOEs. For non-SOEs, further analysis suggests that optimal lending decisions and efficient investment can be achieved for firms with higher ownership concentration, and firms in which the family and foreign investors are the controlling shareholders. We argue that, in emerging markets, whether a bank plays a monitoring role by directly holding the debt and equity claims of companies relies heavily on whether the potential collusion between firm executives and bank managers can be averted, which in turn is determined by the firms' governance framework and ownership structure.

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Section: Introductionsupporting

confidence: 91%

Section: Hypothesis Developmentmentioning

confidence: 95%

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China

Pan

Tian

2015

Journal of Banking & Finance

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“…First, due to the unique institutional background (such as weak legal enforcement, overall poor corporate governance, etc. ), the monitoring role of private ownership over companies is questioned: For example, although most studies on developed markets agree that direct bank ownership provides better capital access to, and better monitoring of, companies (Diamond, 1984;Barth et al, 2006), Lin, Zhang, and Zhu (2009) document that bank ownership in China is associated with poorer operating performance, possibly due to inefficient investments.…”

Section: Ownership and Earnings Managementmentioning

confidence: 99%

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

2014

China Account Financ Rev

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China’s stock market has gone through major structural changes since its inception in the early 1990s. In this survey article, we review the empirical literature published in 15 leading accounting and finance journals from 1998 to 2013 that documents these important structural changes. In analysing this literature, we focus on the ‘distinctiveness’ of the Chinese stock market compared with developed stock markets (e.g. US) and the research opportunities generated by the China setting. Key themes include China’s share issue privatisation (SIP) reforms, the political connections in privately owned companies, the characteristics of Chinese listed companies and their governance, the regulatory environment reforms in China, and the evolving role played by auditors and other information intermediaries.

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Does D&O insurance mislead creditors' lending decisions? Evidence from corporate debt maturity structure

Ruan,

Jin,

et al. 2023

Int. J Fin Econ

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This study investigates whether directors' and officers' liability insurance (D&O insurance) misleads creditors' lending decisions by examining its effect on corporate debt maturity structure. We find that purchasing D&O insurance leads to increased corporate debt maturity, and this effect is more pronounced for firms with weaker corporate governance. These results suggest that creditors may view D&O insurance as an external monitoring tool that helps improve corporate governance. However, D&O insurance induces higher firm risk, but cannot help decrease agency costs or improve firm performance, that is, it results in more severe managerial opportunism. Our findings suggest that D&O insurance, to some extent, misguides creditors' lending decisions.

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Does bank ownership increase firm value? Evidence from China

Cited by 62 publications

References 34 publications

Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China

Does banks’ dual holding affect bank lending and firms’ investment decisions? Evidence from China

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

Does D&O insurance mislead creditors' lending decisions? Evidence from corporate debt maturity structure

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