Wang, Xiaotian
(2022)
Three essays on cross-border syndicated loans: evidence from developing countries.
PhD thesis, University of Nottingham.
Abstract
Nowadays, a key policy issue facing the monetary and financial regulation authorities is the impact of cross-border capital flows. The global financial crisis has highlighted the role of financial integration and development worldwide in triggering financial distress and instability. Strengthened regulation of cross-border banking behaviours, which usually bear pro-cyclical nature and generate risks, has become necessary for governments to fend off domestic and global financial stability in the age of an integrated world economy. Compared with FDI and equity financing, credit flows are less favourable to efficient risk sharing and more prone to destabilizing, thus they deserve more regulatory attention. Given academic and policy attention attached to cross-border syndicated loans is relatively insufficient in contrast with the significance of such financing channels in the global market, my thesis aims to fill the gap and study the determinants and impact of cross-border syndicated loans, one of the main components of cross-border capital flows. Research on the issue could help policy makers to keep better track of gross cross-border capital flows, enhance global coordination over financial regulation, and help businesses and banks to better understand potential risks and consequences when choosing SLs as a financing method.
The first chapter is based on evidence from China, the world’s second largest economy where banks are increasingly using syndicated lending (SL) to develop cross-border business. In the first chapter we examine the determinants of cross-border SL from China during the period 2006-2014, across 68 countries. The results show that expected credit risk is one of the main drivers of Chinese banks’ overseas syndication but that there are additional drivers, including government ownership, free riding, compensation for limited physical presence in borrower countries, the lowering of information asymmetries and diversification of the lending portfolio. We also find that Chinese banks prefer to group together in a syndicate rather than partner with a foreign-owned bank, and they demonstrate different motivations when extending SLs to developed and developing countries. The findings bear implications for banking regulators and policy makers witnessing inbound and outbound Chinese capital flows for financing companies and projects, and highlight potential fluctuations and uncertainties in the global financial market when Chinese banks adjust their portfolio and risk measurement to comply with the newest Basel regulatory rules.
The second chapter investigates whether foreign syndicated loan announcement is good news or bad news for firms in emerging economies. Syndicated credits have become a key source of global finance, and such lending has become a main arena where lenders expand their activities into global markets and internationalize their business. The existent literature neglects, however, the significance of syndicated loans in cross-border capital flows and their effects on the market performance of borrowers. The research question of how emerging capital markets would respond to syndicated loan announcements that involve foreign banks would be our focus in this chapter. This question is particularly pertinent if we consider that syndicated loans are developed around arrangers that were appointed by the borrowers themselves. Our research aims to fill the gap and examine whether and how receiving syndicated loans would affect the market performance of borrowers in developing countries, by analysing syndicated loans announcements of publicly listed firms in 15 emerging economies from 1998 to 2016. The results generated by using event study methodology suggest cross-border syndicated loans trigger significant negative market response to the borrowers’ stock return. Thus, borrowers should be prudential when taking foreign syndicated loans as one of their major financing methods. Furthermore, policy makers and regulators from developing countries should take this potential negative influence into account before welcoming the rapid development of cross-border syndicated loans.
The third chapter studies how the national culture of a developing country affects banks’ decisions to extend cross-border SLs into that area, by analysing loans extended by major banks from G20 countries from 2000 to 2017. We proxy national culture by adopting the Hofstede model that consists of six dimensions: power distance that expresses the degree to which the less powerful members of a society accept and expect that power is distributed unequally; individualism versus collectivism; masculinity versus femininity (or tough versus tender cultures); uncertainty avoidance; long term orientation versus short term normative orientation; and indulgence versus restraint. A multilevel linear regression method is used to investigate the potential association with national culture, while controlling for other macro-level, transaction-level and bank-level variables. We collected records of cross border syndicated loans extended by G20 banks to 22 developing countries from 2000 to 2017, and applied a multi-level linear regression to investigate the relation between loan amount and cultural features of borrower countries, while controlling for transaction and bank level variables. The key findings are cultural dimensions of borrower countries play a significant role in receiving funds via overseas syndication, as developing countries with higher preference of a loosely organized society that prioritizes individualism, uncertainty avoidance, masculinity, short term effects and indulgence, tend to obtain more overseas syndicated loans from major G20 banks.
To sum up, by analysing empirical evidence from emerging economies and the G20 community, which include the main entities subject to intensified global financial integration and upgrades of the Basel rules, my thesis aims to fill the gap of determinants and impact of cross-border syndicated loans, and raise policy makers’ awareness to monitor gross cross-border capital flows through this channel and enhance global financial regulatory cooperation, while providing implications for businesses and banks to evaluate potential risks and consequences when considering SLs as a financing option.
| Item Type: |
Thesis (University of Nottingham only)
(PhD)
|
| Supervisors: |
Barakat, Ahmed
Webb, Robert |
| Keywords: |
Banking; Syndicated Lending; Cross-border Loans |
| Subjects: |
H Social sciences > HG Finance |
| Faculties/Schools: |
UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School |
| Item ID: |
63871 |
| Depositing User: |
Wang, Xiaotian
|
| Date Deposited: |
07 Dec 2023 13:21 |
| Last Modified: |
08 Dec 2023 04:30 |
| URI: |
https://eprints.nottingham.ac.uk/id/eprint/63871 |
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