Corporate Misconduct and the Cost of Private Debt: Evidence from China

Xian Gu, Iftekhar Hasan, Haitian Lu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

Abstract

Using a comprehensive dataset of corporate lawsuits in China, we investigate the implications of corporate misconduct on the cost of private debt. Evidence reveals that firms involved in litigations obtain subsequent loans with stricter pricing terms, 15.1 percent higher loan spreads, than non-litigated borrowers. Strong political connection and repeated relationship help to flatten the sensitivity of loan pricing to litigation. Nonbank financial institutions react in stronger manner to corporate misconduct than traditional banks in pricing loans. Overall, we show that private debt holders care about borrowers’ wrongdoing in the past.

Original languageEnglish
Pages (from-to)443-463
Number of pages21
JournalComparative Economic Studies
Volume61
Issue number3
DOIs
Publication statusPublished - 1 Sep 2019

Keywords

  • Litigation
  • Loan spreads
  • Political connection
  • Relationship

ASJC Scopus subject areas

  • Economics and Econometrics

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