Are firm- and country-specific governance substitutes? Evidence from financial contracts in emerging markets

Document Type

Article

Publication Date

9-1-2012

Abstract

We investigate how borrowers' corporate governance influences bank loan contracting terms in emerging markets and how this relation varies across countries with different country-level governance. We find that borrowers with stronger corporate governance obtain favorable contracting terms with respect to loan amount, maturity, collateral requirements, and spread. Firm-level and country-level corporate governance are substitutes in writing and enforcing financial contracts. We also find that the distinctiveness of borrowers' characteristics affect the relation between firm-level corporate governance and loan contracting terms. Our findings are robust, irrespective of types of regression methods and specifications. © 2012 The Southern Finance Association and the Southwestern Finance Association.

Publication Title

Journal of Financial Research

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