Article
What firm risk factors drive bank loan pricing and other terms? Evidence from China
What firm risk factors drive bank loan pricing and other terms? Evidence from China
(2022)
Abstract
This study investigates how firm risk factors affect bank loan pricing. Although firm-specific stock price crash risk affects bank loan costs directly, it also prompts other risks, including financial restatement and litigation, which in turn trigger higher bank loan costs. Strong internal and external governance mechanisms help reduce agency problems and improve information transparency, alleviating the adverse effect of stock price crash risk on loan costs. Our results confirm that bankers take good corporate governance into account in their bank loan decisions. We also show that bond investors price the adverse effect of stock price crash risk, prompting higher corporate bond costs. Futher evidence suggests that banks impose stricter non-price terms, such as smaller loan size, shorter loan maturity, and a higher likelihood of collateral requirement, on firms with higher crash risk.
Keywords
- bank loan cost,
- china,
- credit risk,
- stock price crash risk
Disciplines
Publication Date
2022
DOI
doi.org/10.1111/acfi.13001
Citation Information
Hongmin Jin, Lu Wang, Zuoping Xiao and Hung Gay Fung. "What firm risk factors drive bank loan pricing and other terms? Evidence from China" What firm risk factors drive bank loan pricing and other terms? Evidence from China (2022) Available at: http://works.bepress.com/hunggay-fung/171/