On the determinant of bank loan contracts: The roles of borrowers' ownership and board structures
Journal
Quarterly Review of Economics and Finance
Journal Volume
54
Journal Issue
4
Pages
500-512
Date Issued
2014
Author(s)
Abstract
Given the worldwide economic importance of bank loan financing, we empirically investigate the roles of borrowers' ownership and board structure in bank loan terms through a comprehensive dataset, which includes the complete history of individual bank loan contracts for firms publicly listed in the Taiwan Stock Exchange (TWSE). We find that firms with smaller deviation in shareholder voting and cash flow rights, larger non-retail shareholding, fewer shares pledged by the board of directors, independent directors, and firms without dual boards are more likely to borrow from banks at lower spread. In addition, good governance practices are also associated with larger loan size or longer loan period, suggesting that banks take into account borrowers' governance practices when designing loan contracts. This fact is consistent with the agency cost and information risk explanations of Bhojraj and Sengupta (2003). Furthermore, this study uncovers that the beneficial effect of good governance practices on bank loan contracting is more pronounced in borrowers with high leverage and poor rating, which implies that the monitoring role of governance is more crucial in risky firms. Our findings are robust to the various characteristics of firms and loans. ? 2014 The Board of Trustees of the University of Illinois.
Subjects
Bank loan contracts
Bank loan price
Board structure
Corporate governance
Non-price terms
Ownership structure
Type
journal article