Social Trust and Bank Loan Financing: Evidence from China

Deqiu Chen (First Author), Cong Wang (Participant Author), Xuejiao Liu (Participant Author)

    Research output: Contribution to journalJournal

    40 Citations (Web of Science)

    Abstract

    Using a sample of non-state-owned enterprises (NSOEs) in China, we investigate the impact of social trust on firms' access to bank loan financing. We find that privately controlled firms in trust-intensive regions are more likely to obtain loans from banks than those in regions with a lower level of social trust. The positive effect of trust on access to bank loans is more pronounced for firms that have no political connections, firms that are located in regions with poor legal environments, and firms that hire less reputable auditors. We also examine the channels through which social trust promotes bank finance. The results show that firms in trust-intensive regions have a lower likelihood of default and higher financial reporting quality. Finally, we find that loans to NSOEs in trust-intensive regions are associated with fewer collateral requirements, longer maturity, and lower interest rate spread. Overall, these findings suggest that social trust alleviates lenders' concerns regarding moral hazard and plays an important role when NSOEs raise capital from the bank loan market.
    Original languageEnglish
    Pages (from-to)374-403
    JournalABACUS-A JOURNAL OF ACCOUNTING FINANCE AND BUSINESS STUDIES
    Volume52
    Issue number3
    DOIs
    Publication statusPublished - 2016

    Corresponding author email

    xuejiaoliu@uibe.edu.cn

    Project name

    政策性负担、兼并收购与管理层职位变迁

    Project sponsor

    国家自然科学基金

    Project No.

    71272221

    Indexed by

    • Scopus
    • SSCI

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