State-owned Banks Loans to Their Connected Parties: Evidence from Indonesia

Wisnu Untoro

Abstract

I hypothesize that banks’ stockholders react negatively to the announcement of state-owned (government) banks loans to their connected parties. Arguably, minority shareholders may suppose that connected lending are granted for unprofitable project as state-owned banks have to help government in the social and development activities. Using data for Indonesia state-owned banks loans, I find little evidence that market reacts negatively to the loans which are granted to connected parties.

Keywords

State-owned banks Connected loans Loan announcement Minority shareholders Indonesia

Full Text:

PDF

References

Boscaljon, B., Ho, C-C. 2005. Information content of bank loan announcements to Asian corporations during periods of economic uncertainty. Journal of Banking & Finance 29, 369–389.

Dinc, S. I., 2005. Politicians and banks: Political influences on government-owned banks in emerging markets. Journal of Financial Economics 77, 453–479.

Huang, W., Schwienbacher, A., Zhao, S. 2011. When bank loans are bad news: Evidence from market reactions to loan announcements under the risk of expropriation. Journal of International Financial Markets, Institutions & Money, Forthcoming.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A. 2002. Government ownership of banks. Journal of Finance 57, 256-301.

Micco, A., Panizza, U., Yanez, M., 2007. Bank ownership and performance. Does politics matter?.Journal of Banking & Finance 31, 219–241.

Mosebach, M. 1999. Market response to banks granting lines of credit. Journal of Banking & Finance 23, 1707 – 1723.

Ongena, S., Roscovan, V., Song, W., Werker, B., 2008. Banks and Bonds: The Impact of Bank Loan Announcements on Bond and Equity Prices. Tilburg University (working paper).

Sapienza, P., 2004. The Effects of government ownership on bank lending. Journal of Financial Economics 72, 357-384.

Shleifer, A., Vishny, R.W., 1994. Politicians and firms. Quarterly Journal of Economics 46, 995-1025.

Shleifer, A., Vishny, R.W., 1998. The grabbing hand: government pathologies and their cures. Cambridge, Massachusetts: Harvard University Press.

DOI: https://doi.org/10.20961/smbr.v1i2.2256

Refbacks

  • There are currently no refbacks.