Effects of Foreign Institutional Ownership on Foreign Bank Lending: Some Evidence for Emerging Markets

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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). 2014.
Original languageEnglish
Pages (from-to)263-293
Number of pages31
JournalInternational Review of Finance
Issue number2
Publication statusPublished - 1 Jan 2014
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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