TY - JOUR
T1 - Internal governance, legal institutions and bank loan contracting around the world
AU - Ge, Wenxia
AU - Kim, Jeong-Bon
AU - Song, Byron Y.
N1 - W. Ge acknowledges funding support from the Institute of Chartered Accountants of Manitoba and from the University of Manitoba start-up grant. J.-B. Kim acknowledges partial financial support for this project from the GRF grant from the Hong Kong SAR government. B. Song acknowledges partial financial support
for this project from the Faculty Research Development Program (FRDP), John Molson School of Business, Concordia University.
PY - 2012/6
Y1 - 2012/6
N2 - Using a sample of non-U.S. firms from 22 countries during 2003–2007, we examine the effect of firm-level governance on various features of loan contracting in the international loan market. We find that banks charge lower loan rates, offer larger and longer-maturity loans, and impose fewer restrictive covenants to better-governed firms. We also find that the favorable effect of firm-level governance on some loan contracting terms is stronger in countries with strong legal institutions than in countries with weak legal institutions. Our results suggest that banks view a borrower's internal governance as a factor that mitigates agency and information risk, and that country-level legal institutions and firm-level governance mechanisms complement each other in influencing loan contracting terms.
AB - Using a sample of non-U.S. firms from 22 countries during 2003–2007, we examine the effect of firm-level governance on various features of loan contracting in the international loan market. We find that banks charge lower loan rates, offer larger and longer-maturity loans, and impose fewer restrictive covenants to better-governed firms. We also find that the favorable effect of firm-level governance on some loan contracting terms is stronger in countries with strong legal institutions than in countries with weak legal institutions. Our results suggest that banks view a borrower's internal governance as a factor that mitigates agency and information risk, and that country-level legal institutions and firm-level governance mechanisms complement each other in influencing loan contracting terms.
UR - http://www.scopus.com/inward/record.url?eid=2-s2.0-84862823441&partnerID=MN8TOARS
U2 - 10.1016/j.jcorpfin.2012.01.006
DO - 10.1016/j.jcorpfin.2012.01.006
M3 - Journal article
SN - 0929-1199
VL - 18
SP - 413
EP - 432
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
IS - 3
ER -