【Abstract】

Using hand-collected data of bank loans and CEO turnovers in China, we investigate whether common ownership would compromise creditors’ governance role when their borrowers underperform. Unlike prior literature that documents the overall lack of bank monitoring on state-owned enterprises (SOEs) in China, we argue that such governance inefficiency exists only among the lending relationships where the banks and the firms share the same government agency (i.e., common state ownership). These effects are more pronounced among the firms with a board director appointed by the lending bank, with ownership in the bank’s shares, and with political connections. Following forced CEO turnovers, local SOEs with common ownership enjoy less strict loan terms while those with no common state ownership face stricter loan terms. Overall, this paper sheds light upon the functions of state-owned business groups in emerging markets.

【Keywords】

Common ownership; lending relationship; SOE; CEO turnover; China

【Authors】

He Qing, Senior Research Fellow of IMI, School of Finance, Renmin University

Li Dongxu, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University