Wei-Ren Yao

Abstracts

1 Family Succession and Cost of Bank Loans: Evidence from China

Authors: Tzu-Ching Weng, Hsin-Yi Chi, Wei-Ren Yao

Abstract:

The purpose of this study is to examine the effect of family succession on the cost of bank loan and non-price contractual terms. Using a unique dataset from China, we find that lending banks are more likely to charge higher interest rates and impose tighter contractual terms, such as maturity of loans and collateral requirement for second-generation family firms. This finding indicates that information risk and default risk may arise after subsequent family succession. However, we find that second-generation family firms can reduce their cost of bank loan by hiring top-tier auditors or establishing political connections to enhance the credibility of financial reporting or possible future bailouts from the Chinese government.

Keywords: Family Succession, family firm, cost of bank loan, loan contract terms

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