Effects of foreign institutional ownership on foreign bank lending : some evidence for emerging markets

Liangliang JIANG, Yi ZHU

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

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 Latin American 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).
Original languageEnglish
Pages (from-to)263-293
Number of pages31
JournalInternational Review of Finance
Volume14
Issue number2
Early online date7 Jan 2014
DOIs
Publication statusPublished - Jun 2014

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Foreign ownership
Costs
Agency conflict
Institutional shareholders
Foreign banks
Emerging markets
Bank lending
Institutional ownership
Latin American countries
Shareholders
Cost of debt
Burden
Debt financing
Interaction
Corporate governance
Developing countries
Large shareholders
Loans
Borrowing
Debt

Bibliographical note

Liangliang Jiang gratefully acknowledges financial support from Lingnan University, Hong Kong.

Cite this

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abstract = "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 Latin American 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).",
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Effects of foreign institutional ownership on foreign bank lending : some evidence for emerging markets. / JIANG, Liangliang; ZHU, Yi.

In: International Review of Finance, Vol. 14, No. 2, 06.2014, p. 263-293.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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