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CEO Duality and Bank Loan Contracting: Evidence from China

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  • Chong Chen
  • Huijie Cui
  • Yanan Zhang

Abstract

This paper investigates the impact of CEO duality on bank loan contracting costs. Using hand-collected data of China’s loan contracting terms throughout 2004–2020, we find that CEO duality leads to stricter loan contracting terms, shown as higher adjusted loan rates and shorter loan maturity. The results hold after we perform robustness tests including change analyses, propensity score matching analyses, as well as tests based on exogenous CEO turnovers. The positive relationship between duality and loan costs is more pronounced among firms with higher internal and external uncertainties. We further find that information asymmetry and CEO entrenchment are possible channels through which CEO duality increases bank loan contracting costs. Overall, the evidence supports the agency theory view that CEO duality increases firm’s credit risk, thus leading to stricter bank loan contracting terms.

Suggested Citation

  • Chong Chen & Huijie Cui & Yanan Zhang, 2022. "CEO Duality and Bank Loan Contracting: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(12), pages 3526-3540, September.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:12:p:3526-3540
    DOI: 10.1080/1540496X.2022.2057219
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    Cited by:

    1. Gan, Tian & Jiang, Yan & Wu, Xi & Zhang, Mingxin, 2023. "Oil price uncertainty and the cost of debt: Evidence from the Chinese bond market," Journal of Asian Economics, Elsevier, vol. 87(C).
    2. Liu, Huan & Hou, Canran, 2023. "The external effect of institutional cross-ownership on excessive managerial perks," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 483-501.
    3. Nguyen, Linh Thi My & Nguyen, Phong Thanh, 2023. "The board profiles that promote environmental, social, and governance disclosure–Evidence from S&P 500 firms," Finance Research Letters, Elsevier, vol. 55(PA).

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