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How Does Corporate Governance Affect Loan Collateral? Evidence from Chinese SOEs and Non‐SOEs
Author(s) -
An Can,
Pan Xiaofei,
Tian Gary
Publication year - 2016
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.12085
Subject(s) - collateral , corporate governance , business , shareholder , china , affect (linguistics) , accounting , loan , principal–agent problem , financial system , control (management) , finance , economics , linguistics , philosophy , management , political science , law
We examine the effect of corporate governance on the collateral requirements for firms' bank loans in China. We find that firms with lower excess control rights and other large shareholders face lower collateral requirements, which is more pronounced in non‐state‐owned enterprises (SOEs) than in SOEs. Regarding board characteristics, we find that smaller board size, more independent directors, separation of the positions of CEO and chairman, and larger supervisory board size can reduce a firm's use of collateral; the effect of all the preceding characteristics is more pronounced in SOEs. Overall, our research suggests that, in China, corporate governance structures are able to affect bank‐lending decisions in respect of collateral requirements and that the influence depends on the controlling shareholder type and associated agency problems.