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Family succession and cost of bank loans: Evidence from China

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  • Weng, Tzu-Ching
  • Chi, Hsin-Yi

Abstract

This study examines the effect of family succession on the cost of bank loans and non-price contractual terms. We use a unique dataset from China and find that lending banks are likely to charge higher interest rates and offer tighter contractual terms, such as loan maturity and collateral requirements, for family succession firms. These findings indicate that information asymmetry and default risks may arise after subsequent family successions. We also find that family succession firms can lower the cost of bank loans by hiring top-tier auditors, who can enhance financial reporting credibility. This finding suggests that professional, high-quality auditors can provide extremely valuable services to family succession firms.

Suggested Citation

  • Weng, Tzu-Ching & Chi, Hsin-Yi, 2024. "Family succession and cost of bank loans: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 638-655.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:638-655
    DOI: 10.1016/j.iref.2023.10.019
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    More about this item

    Keywords

    Family succession; Cost of bank loans; Loan contract terms; Top-tier auditor;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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