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Who Gains from Credit Granted between Firms? Evidence from Inter-corporate Loan Announcements Made in China

Time:2017-12-25 16:17:21  Hits:[]

Who gains from inter-corporate credit? To answer this question we investigate the market reaction of both the issuing and receiving firms to the announcements of inter-corporate loans in China. We find that the average abnormal return for the issuers of inter-corporate loans is significantly negative, whereas positive for the receivers. Investors may worry that issuing firms run out of worthwhile projects to finance, while they perceive credit-receiving firms as being certified as worthy borrowers. Firms have a lower / better performance after the issuance / receipt of inter-corporate loans, and corporate investment increases more for the receivers than the issuers.
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