Production,Identification And Transmission Of Bank Loan Information

Classical bank information theory holds that the core of bank credit activities is information production,that is,the lender conducts pre-screening and postsupervision of borrowers through information collection,transmission and processing to alleviate information asymmetry.Due to the unique function of banks in information production,obtaining bank credit is often regarded as a signal that the company has good reputation.Theoretically,when the loan announcement is regarded as good news will cause a positive reaction in the capital market.Since James(1987)tested the particularity of banks with the data of loan announcement for the first time,many scholars have used this method to test the information production function of banks from multiple perspectives.Most studies on mature markets in Europe and America support the role of bank credit in supervision and governance,which reflects the unique value of banks in information production.However,there are different conclusions about the Chinese market.Most of them find that China's capital market has a negative reaction to the loan announcement,which challenges the classical bank information theory,but there are few literatures to explain it.This paper,on the one hand,explores the process of bank information production,on the other hand,introduces the identification and transmission of information by investors,and considers some important corporate characteristics that may affect investors' s reaction,so as to make a more comprehensive and indepth discussion on the loan announcement in China's capital market.This research deepens and expands the classical bank information theory,and also helps to understand the transmission mechanism of information in the capital markets,which has strong theoretical significance.At the same time,the research of this paper is at the micro level of banks,investors and firms,which is helpful to the decisionmaking of all participants in the credit market and capital market,so it also has some practical significance.Specifically,the main research contents and findings of this paper are as follows:Firstly,the market reaction of the loan announcement is tested from the perspective of possible differences in the production of bank loan information.The quality of information produced by banks will be different due to the difference in the closeness of the relationship between banks and firms.This paper introduces "bank-firm relationship " to measure the closeness of the relationship between banks and firms,and incorporates it into the regression model to test its impact on the market reaction of loan announcements.Considering the existing study often measure the bank-firm relationship from one dimension,which may not be comprehensive enough,this paper adopts the "excess" long-term debt ratio to measure the strength of bank-firm relationship more comprehensively and synthetically from the results of bank-firm's long-term cooperation.The empirical results show that the capital market's reaction to the loan announcement is still negative in general,but there is a significant positive correlation between the bankfirm relationship and the market reaction,indicating that the strength of bank-firm relationship has a positive moderating effect on the negative market reaction to the loan announcement.The results show that the close bank-firm relationship can improve the information production quality of bank loans,and the information value passed through the loan announcement has been recognized by the market.Secondly,this paper tests institutional investors' ability to identify the information value of bank-firm relationship.The close bank-firm relationship improves the information quality of bank loan production,and the value of this information needs to be recognized by investors with professional knowledge.In general,institutional investors have better expertise and ability to interpret information.However,it is found that not all institutional investors have good ability.Therefore,this paper divides institutional investors into three categories furtherly:high ability,normal ability and low ability,then incorporates the cross-product terms of the total shareholding of institutional investors and the bank-firm relationship,the shareholding of institutional investors with different abilities and the bank-firm relationship into the regression model to test the information identification ability of institutional investors respectively.The results show that the regression coefficient of high ability institutional investors' shareholding and bank-firm relationship is significantly positive,but the regression coefficients of total shareholding,normal ability institutional investors' shareholding,low ability institutional investors' shareholding and bank-firm relationship are not significant.The above results show that among all institutional investors,only institutional investors with high ability can identify the information value of bank-firm relationship.Moreover,some important heterogeneity characteristics at the firm level affect the judgment of institutional investors with high ability.Specifically,institutional investors with high ability only recognize the bank-firm relationship value of firms with low degree of financialization,non-state-owned and low risk of tunneling.Thirdly,this paper examines the transmission of bank-firm relationship's information among institutional investors.Existing literature show that there is extensive private information communication among institutional investors,so information transmission is also one of the key points affecting market reaction.The social network constructed based on various social connections is an important medium for private information transmission by institutional investors,and its structure plays a decisive role in the efficiency of information transmission.Investors' ability to obtain and disseminate information varies depending on their position in the network.Generally speaking,the closer the investor is to the center of the network,the more likely he is able to obtain the information advantage,and convey more information to the market,showing a stronger ability to control information.Therefore,this paper constructs the information network of institutional investors with heavy positions as the connection,and incorporates the network centrality of institutional investors with high ability into the regression model to test its impact on the information transmission efficiency of bank-firm relationship.The results show that the coefficient of the cross-product term of the centrality of investors with high ability and the bank-firm relationship is significant positive,namely that when investor with high ability is more close to the center of the network,the easier the information value of bank-firm relationship can be passed to the network,thus causes the positive change in the market reaction;Moreover,investors with high ability make different judgments on the value of bank-firm relationship to firms with different characteristics,these different judgments are more effectively transmitted to the network of institutional investors when investor with high ability is more close to the center of the network,thus causing the market react in the same direction.This paper explains the existing controversy in the research of China's loan announcement from the perspective of banks and investors,provides new empirical evidence both for the bank information production and information transmission mechanism of capital market,also deepens and expands the classical theory of bank information production.The results of heterogeneity have certain reference value for all participants.The main contributions of this paper are as follows:Firstly,this paper discusses the possible differences in the production of bank loan information from the perspective of bank-firm relationship for the first time.Secondly,this is the first time that the shareholding of institutional investors with different abilities is included in the study of loan announcements,which combines the information production of banks with the information identification ability of institutional investors.Thirdly,this is the first time that the centrality of institutional investors with high ability in the network is included in the study of loan announcement,which combines the information production of banks with information transmission efficiency of institutional investors.Fourthly,this is the first time that some corporate characteristics such as financialization,property rights and tunneling risk are included in the study of loan announcement for heterogeneity analysis,which further details the research of information identification and transmission of institutional investors.The results of this paper generally support the research hypothesis,but the CAPM and five-factor model only maintain the conclusion of three-factor model to a certain extent,some differences in the conclusions of the three models need to be further discussed.To be specific:Firstly,the difference in the significant interval indicates that there may be information leakage in the information identification of institutional investors,and there may be time lag in the information transmission.But identifying what's going on exactly requires more precise designs for further testing.Secondly,further studies can make a more subtle distinction between the characteristics of enterprise property rights and the risk of tunneling to explain the differences in the heterogeneity test results.Thirdly,the empirical results of this paper support the rationality of the control variables selected in this paper to a certain extent,but the significance of most of the control variables in the regression results is weak,so the control variable groups can be replaced for further tests.Fourthly,this paper considers the impact of network centrality of institutional investors with high ability on information transmission efficiency.In future studies,the influence of other characteristics of information network on information transmission can be considered further.