Loan guarantees and the cost of debt : evidence from China

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

8 Scopus Citations
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Author(s)

  • Bin Liu
  • Charles Cullinan
  • Junrui Zhang
  • Fangjun Wang

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)3626-3643
Journal / PublicationApplied Economics
Volume48
Issue number38
Publication statusPublished - 14 Aug 2016

Abstract

ABSTRACT: In this article, we examine the potential influence of loan guarantees and the nature of ownership on a company’s cost of debt. Using data on Chinese A-share listed companies from 2007 to 2014, we find that guaranteeing another entity’s debt significantly increases the guarantor’s cost of its own debt. Regarding the nature of ownership, our results indicate that the cost of debt for state-owned enterprises (SOEs) is lower than that for non-SOEs. Among SOEs, firms controlled by the central government have lower cost of debt than firms controlled by local governments. We also find some evidence that local government ownership mitigates the effects of loan guarantees on the cost of a guarantor’s own debt.

Research Area(s)

  • cost of debt, information asymmetry, Loan guarantee, state-owned enterprises

Citation Format(s)

Loan guarantees and the cost of debt : evidence from China. / Liu, Bin; Cullinan, Charles; Zhang, Junrui; Wang, Fangjun.

In: Applied Economics, Vol. 48, No. 38, 14.08.2016, p. 3626-3643.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review