Corporate fraud and bank loans: Evidence from china

Chen, Yunsen; Zhu, Siyu; Wang, Yutao

doi:10.1016/j.cjar.2011.07.001

Cited by 49 publications

(29 citation statements)

References 11 publications

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“…As Karpoff et al (2008) note, the magnitude of that effect is up to 7.5 times larger than that of legal fines. Chen, Zhu and Wang (2011) find that the Chinese stock market is less efficient than those in developed countries. Thus, other measures are potentially important to investigate because Chinese stock prices could be biased.…”

Section: State-ownership and The Consequences Of Fraudmentioning

confidence: 87%

“…Second, a fraud revelation can indicate other problems in a firm, and therefore increase information asymmetry between borrower and lender (Anderson and Yohn 2002; Palmrose et al 2004;Graham et al 2008;Chen et al 2011). This can lead to higher forecast dispersion, an increase in bid-ask spreads, and, consequently, an increase in the cost of capital (Easley and O'Hara 2004).…”

Section: State-ownership and The Consequences Of Fraudmentioning

confidence: 99%

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State-ownership and bank loan contracting: evidence from corporate fraud

Haß

Vergauwe

Zhang

2017

The European Journal of Finance

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This paper explores the effect of borrower and lender state-ownership on the consequences of corporate fraud in the debt market. Fraud revelations can increase a firm's information and credit risk, and are therefore expected to significantly affect future bank loan conditions. The Chinese economy provides a unique setting from which to study the influence of state-ownership on debt contracting because it is dominated by state-owned banks and firms. Using a sample of bank loans and enforcement actions announced between 2001 and 2012, we find that, after fraud announcements, the cost of private debt increases significantly, but not for loans issued by state-owned banks to state-owned enterprises.Moreover, we find evidence that state-owned banks grant, and state-owned enterprises receive, lower interest rates. Additional tests show that state-owned enterprises that received a more favorable interest rate after the announcement of fraud from a state-owned bank perform worse than other firms. These results indicate that despite the bank reforms stateowned banks continue to favor state-owned enterprises and this could lead to sub-optimal lending.

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Section: State-ownership and The Consequences Of Fraudmentioning

confidence: 87%

Section: State-ownership and The Consequences Of Fraudmentioning

confidence: 99%

State-ownership and bank loan contracting: evidence from corporate fraud

Haß

Vergauwe

Zhang

2017

The European Journal of Finance

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“…AM is the natural log form of the amount financing (amount of loan or bond). The Z-score, which is based on the financial distress prediction model in Chen et al (2011), represents operating risk. Size is the natural log form of firm assets at the beginning of the year, Lev is the total debt ratio at the beginning of the year, ROE is the return on equity at the beginning of the year, and CF is the ratio of operating cash flow to total assets at the beginning of the year (Fidrmuc et al 2010).…”

Section: Variablesmentioning

confidence: 99%

“…Chen et al (2011). *** Significant at the 0.01 level; ** significant at the 0.05 level; * significant at the 0.10 level.Downloaded by [University of Exeter] at 08:36 20 July 2015…”

mentioning

confidence: 95%

Financial Reporting Quality, Debt Maturity, and the Cost of Debt: Evidence from China

Chen

Zhu

2013

Emerging Markets Finance and Trade

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This paper investigates the influence of different financing channels-bond issuance or bank loans-as well as debt maturity and the quality of financial reporting on the cost of debt in China. The authors find that conservative accounting is an important characteristic of high-quality financial reporting that can reduce the cost of longer maturity debt such as bank loans and bonds. Even state-owned enterprises, which have fewer financial constraints than non-state-owned enterprises, benefit from accounting conservatism's ability to reduce financial costs. Moreover, the findings indicate that bond investors are concerned about the issuer's fundamentals, while banks are more likely to focus on the operation and bankruptcy risk of borrowers.

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“…I find firms which suffer a loss in reputation experience a sharp decline in trade credit. These violating firms also report a decreasing amount of new debt provided by financial institutions, in line with Chen et al (2011b). However, there is 115 little evidence suggesting that reputation loss increases firm risk.…”

mentioning

confidence: 63%

Securities Law Violation and Reputation Loss in the Chinese Capital Market

Xu¹

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Corporate fraud and bank loans: Evidence from china

Cited by 49 publications

References 11 publications

State-ownership and bank loan contracting: evidence from corporate fraud

State-ownership and bank loan contracting: evidence from corporate fraud

Financial Reporting Quality, Debt Maturity, and the Cost of Debt: Evidence from China

Securities Law Violation and Reputation Loss in the Chinese Capital Market

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