Keywords
contestability
bank debt
China
How to Cite
Abstract
Purpose – This paper explores the role of multiple large shareholders to provide evidence of their influence on a firm’s bank debt.
Theoretical framework – We introduce agency theory to support our study.
Design/methodology/approach – Empirical research (including the FE model, PSM method, and IV method) is used in our study. Moreover, this paper selects the non-financial A-share companies listed in the Shanghai and Shenzhen stock markets from 2007 to 2022 as the sample.
Findings – We find that bank debt is positively and significantly related to tunneling, and negatively and significantly related to Tobin’s Q. Moreover, it is found that multiple large shareholders’ contestability reduces firms’ bank debt. Furthermore, we document that the influence of multiple large shareholders on bank debt would be reduced in state-owned firms.
Practical & social implications of research – Our findings contribute to the literature by highlighting the role of multiple large shareholders, who can reduce the agency cost of a firm’s bank debt.
Originality/value – This study contributes to the literature in several important ways. First, it adds to the research on the governance role of multiple large shareholders. Second, this paper offers the first attempt to examine the impact of the contestability of multiple large shareholders on bank debt, and we find a negative relationship between them.
References
Allen, F., Qian, J., & Qian, M. (2005). Law, finance, and economic growth in China. Journal of Financial Economics, 77(1), 57-116.
Álvarez‐Botas, C., & González, V. M. (2021). Institutions, banking structure and the cost of debt: new international evidence. Accounting and Finance, 61(1), 265-303.
Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58(3), 1301-1328.
Attig, N., El Ghoul, S., & Guedhami, O. (2009). Do multiple large shareholders play a corporate governance role? Evidence from East Asia. Journal of Financial Research, 32(4), 395-422.
Attig, N., El Ghoul, S., Guedhami, O., & Rizeanu, S. (2013). The governance role of multiple large shareholders: evidence from the valuation of cash holdings. Journal of Management Governance, 17(2), 419-451.
Attig, N., Guedhami, O., & Mishra, D. (2008). Multiple large shareholders, control contests, and implied cost of equity. Journal of Corporate Finance, 14(5), 721-737.
Basu, N., Paeglis, I., & Rahnamaei, M. (2016). Multiple blockholders, power, and firm value. Journal of Banking Finance, 66, 66-78.
Ben-Nasr, H., Boubaker, S., & Rouatbi, W. (2015). Ownership structure, control contestability, and corporate debt maturity. Journal of Corporate Finance, 35, 265-285.
Bennedsen, M., & Wolfenzon, D. (2000). The balance of power in closely held corporations. Journal of Financial Economics, 58(1-2), 113-139.
Boateng, A., & Huang, W. (2017). Multiple large shareholders, excess leverage and tunneling: Evidence from an emerging market. Corporate Governance: An International Review, 25(1), 58-74.
Boubaker, S., Rouatbi, W., & Saffar, W. (2017). The role of multiple large shareholders in the choice of debt source. Financial Management, 46(1), 241-274.
Boubaker, S., & Sami, H. (2011). Multiple large shareholders and earnings informativeness. Review of Accounting Finance, 10(3), 246-266.
Burkart, M., Panunzi, F., & Shleifer, A. (2003). Family firms. Journal of Finance, 58(5), 2167-2201.
Cai, C. X., Hillier, D., & Wang, J. (2016). The cost of multiple large shareholders. Financial Management, 45(2), 401-430.
Cai, D., Luo, J., & Wan, D. (2012). Family CEOs: Do they benefit firm performance in China? Asia Pacific Journal of Management, 29(4), 923-947.
Cao, F., Zhang, X., & Liu, J. (2023). Comment letter regulation and stock price synchronicity: Evidence from China. Asia-Pacific Journal of Accounting & Economics, 30(3), 569-593.
Cheng, M., Lin, B., & Wei, M. (2013). How does the relationship between multiple large shareholders affect corporate valuations? Evidence from China. Journal of Economics Business, 70, 43-70.
Claessens, S., Djankov, S., & Lang, L. H. P. (2000). The separation of ownership and control in East Asian Corporations. Journal of Financial Economics, 58(1-2), 81-112.
Deng, L., Jiang, P., Li, S., & Liao, M. (2019). Social capital and access to informal finance–evidence from Chinese private firms. Accounting & Finance, 59(5), 2767-2815.
Denis, D. J., & Mihov, V. T. (2003). The choice among bank debt, non-bank private debt, and public debt: evidence from new corporate borrowings. Journal of Financial Economics, 70(1), 3-28.
Frésard, L., & Salva, C. (2010). The value of excess cash and corporate governance: Evidence from US cross-listings. Journal of Financial Economics, 98(2), 359-384.
Gong, M., Wang, Y., & Yang, X. (2021). Do independent directors restrain controlling shareholders' tunneling? Evidence from a natural experiment in China. Economic Modelling, 94, 548-559.
Jiang, G., Lee, C. M., & Yue, H. (2010). Tunneling through intercorporate loans: The China experience. Journal of Financial Economics, 98(1), 1-20.
Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90(2), 22-27.
Laeven, L., & Levine, R. (2008). Complex ownership structures and corporate valuations. Review of Financial Studies, 21(2), 579-604.
Li, C., Yan, C., Li, J., Xia, C., Xiao, Y., & Zheng, L. (2024). Multiple large shareholders, agency problem, and firm innovation. Managerial and Decision Economics, 45(2), 734-747.
Lin, C., Ma, Y., Malatesta, P., & Xuan, Y. (2013). Corporate ownership structure and the choice between bank debt and public debt. Journal of Financial Economics, 109(2), 517-534.
Liu, Q., & Tian, G. (2012). Controlling shareholder, expropriations and firm's leverage decision: Evidence from Chinese Non-tradable share reform. Journal of Corporate Finance, 18(4), 782-803.
Maury, B., & Pajuste, A. (2005). Multiple large shareholders and firm value. Journal of Banking Finance, 29(7), 1813-1834.
Mishra, D. R. (2011). Multiple Large Shareholders and Corporate Risk Taking: Evidence from East Asia. Corporate Governance: An International Review, 19(6), 507-528.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
Pagano, M., & Röell, A. (1998). The choice of stock ownership structure: Agency costs, monitoring, and the decision to go public. Quarterly Journal of Economics, 113(1), 187-225.
Paligorova, T., & Xu, Z. (2012). Complex ownership and capital structure. Journal of Corporate Finance, 18(4), 701-716.
Park, C. (2000). Monitoring and structure of debt contracts. Journal of Finance, 55(5), 2157-2195.
Qian, M., & Yeung, B. Y. (2015). Bank financing and corporate governance. Journal of Corporate Finance, 32, 258-270.
Ren, S., He, D., Yan, J., Zeng, H., & Tan, J. (2022). Environmental labeling certification and corporate environmental innovation: The moderating role of corporate ownership and local government intervention. Journal of Business Research, 140, 556-571.
Yan, C., He, X., Li, J., He, H., & Ao, T. (2023). Multiple large shareholders and firm performance: Evidence from China. Asia‐Pacific Journal of Financial Studies, 52(3), 394-435.
Yan, C., & Li, J. (2023). Multiple large shareholders and absinvestment among Chinese listed firms. Revista Brasileira de Gestão de Negócios, 25(2), 147-165.
Yu, H. C., & Tsai, B. Y. (2018). Environmental policy and sustainable development: An empirical study on carbon reduction among Chinese enterprises. Corporate Social Responsibility and Environmental Management, 25(5), 1019-1026.
Zhang, L., & Li, B. (2022). Mutual supervision or conspiracy? The incentive effect of multiple large shareholders on audit quality requirements. International Review of Financial Analysis, 83, 102274.
Zhou, A., & Li, J. (2021). Impact of anti-corruption and environmental regulation on the green development of China's manufacturing industry. Sustainable Production and Consumption, 27, 1944-1960.
Zhu, Y. (2017). Call it good, bad or no news? The valuation effect of debt issues. Accounting Finance, 57(4), 1203-1229.
If a paper is approved for publication, its copyright has to be transferred by the author(s) to the Review of Business Management – RBGN.
Accordingly, authors are REQUIRED to send RBGN a duly completed and signed Copyright Transfer Form. Please refer to the following template: [Copyright Transfer]
The conditions set out by the Copyright Transfer Form state that the Review of Business Management – RBGN owns, free of charge and permanently, the copyright of the papers it publishes. Although the authors are required to sign the Copyright Transfer Form, RBGN allows authors to hold and use their own copyright without restrictions.
The texts published by RBGN are the sole responsibility of their authors.
The review has adopted the CC-BY Creative Commons Attribution 4.0 allowing redistribution and reuse of papers on condition that the authorship is properly credited.