Premium
Effects of Foreign Institutional Ownership on Foreign Bank Lending: Some Evidence for Emerging Markets
Author(s) -
Jiang Liangliang,
Zhu Yi
Publication year - 2014
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12021
Subject(s) - shareholder , agency cost , business , financial system , emerging markets , corporate governance , creditor , monetary economics , foreign ownership , debt , loan , agency (philosophy) , institutional investor , finance , economics , foreign direct investment , macroeconomics , philosophy , epistemology
Despite the large literature on developed countries, little is known about the interactions between corporate governance, foreign ownership, and foreign bank lending in developing countries. Using data from five L atin A merican countries from 2001 to 2008, we provide one of the first pieces of evidence of how foreign ownership affects the loan cost of borrowers in emerging markets. We find that in terms of foreign bank lending, the cost of debt financing is significantly higher for firms whose largest shareholder is a foreign institutional one. The results support the hypothesis that because of potential agency conflicts between shareholders and creditors, having block institutional shareholders tend to increase the borrowers’ debt burden. There is further evidence supporting this agency conflict hypothesis as we find that the effects of large institutional shareholders on borrowing costs become larger (smaller) when the conflicts are aggravated (mitigated).