Loan Announcement, Multiple Banking And Bank Monitoring

As acquisitions and mergers become more frequent, companies are expanded not only along with the expansion of human resources and equipment, but more important is a surge in demand of financing, which give rise to multiple banking and syndicated loan. According to statistics, since2005-2011period, the number of companies for multiple banking accounts on about17.9%of the total number of companies for bank loans, the amount is about49.8%. This shows that the multiple banking play a vital role in company financing. Due to this special function, mutualfy promote relationship always exists between banks and companies. On the one hand, banks will affect development of the companies through loosening or tightening credit capital; on the other hand, security of bank credit funds is closely connected with companies management condition. So banks will carry out rigorous initial screening and lasting ex-post monitoring to lend money, in this point of view, banks take more advantage of information than other investors, which is helpful to improve system of external supervision to the borrowing companies, and to a certain extent reduces adverse selection and borrowers’moral hazard and, hence, the problem of information asymmetry. In traditional single banking, the information asymmetry between the bank and company is a key factor to the efficiency of bank supervision, but in multiple banking, the information asymmetry between banks also affects the supervision efficiency to a large extent. The efficiency of supervision and the significant influence of bank loans will have a significant impact. So announcements of different mode of bank loan agreements by the listed company will lead to different market reaction.First of all, this thesis researches into the bank loan announcements of Chinese listed companies from2005to2011, and313valid samples are obtained from254listed firms guided by certain principle, including56samples of multiple banking and257single banking samples. Then traditional event-study method is applied according to Brownand Warner (1985) to investigate the different effect of different mode of loan announcements on the market value of borrowers. The empirical results show that CARs (cumulative abnormal returns) in our sample bank loan announcements are negative. This enables us to evaluate events’impact on stock prices, and thus, the market reaction to loan announcements. This illustrates that Chinese investors regard this behavior of the company as a "bad" event in the short term, which is quite different from the relevant foreign empirical results. In addition, according to this research, CARs in the window [-7,-3](with t=0referring to the announcement date) are negative and significantly different from0, which shows the leakage of bank loan information during the pre-event period may exist in Chinese market. Moreover, to reflect and comparatively analysis the different efficiency of bank supervision, this thesis divides the total samples into two subsamples according to the different modes of loan announcements. The empirical results show that CARs of multiple banking subsample declines than single banking subsample, CARs in the window [-1,2] of two subsamples are significantly different from each other, to some extent indicating that investors prefer single banking to multiple banking relatively.Secondly, after obtaining CARs of the listed companies’bank loans announcement, to understand whether multiple banking announcement play a more negative impact on stock prices, we focus on dummy variable that reflects different loan modes, and observe its impact to CARs, on the basis of controlling related variables of loan itself and borrowing companies, as well as the external environment. Through multiple linear regression analysis of CARs, the article attempts to find out some concrete evidence to prove that mutual effects between banks in multiple banking will lead to a lower efficiency of supervision.Concrete analysis process as follows:according to the common agent theory, the cooperation between banks can play a scale advantage of information, hence access to economies of scale and more effective supervision. But cooperation between banks can hardly be reached based on the following reasons:the different level of information asymmetry, different evaluation criteria for company performance, as well as the "free-rider" impulse prior to or after the credit. In addition,"flock effect" of multiple banking will lead to fierce competition between banks which not only weaken the company’s initiative to provide relevant information, but also boost company’s bargaining position psychologically, resulting much more grave asymmetric information problem between banks as well as company’s information fraud, then generate additional common agency costs, reduce the efficiency of bank supervision, therefore, CARs of multiple banking loans announcement will be much lower. As to multiple banking subsamples separately, the lead arranger’s state-owned or a bigger share of the loan can also give rise to much more fierce "free-rider" impulse and competition between banks, the higher the proportion, the lower corporate transparency, finally a higher agency cost and a lower efficiency of supervision.In the above assumptions, this paper firstly used a dummy variable to stand for different loan modes, then carried out regression analysis to the event window of the accumulation excess returns, and inspected excess returns’change in different loan modes conditions. The results showed that the dummy variable coefficient were the same with our assumptions basically. In order to further validate that multiple banking can lose bank supervision efficiency, another regression analysis is applied to research the relationship between CARs and state-owned as well as amount proportion of lead arranger. Test results show that excess return of the listed company caused by bank loans announcement with state-owned or a larger amount proportion of lead arranger were much lower which passed the significance test with confidence level at5%. Therefore, the conclusion perfectly confirmed our previous assumptions:noncooperation indeed exist between banks in multiple banking which result in efficiency loss of bank supervision.