In this paper we argue that ine? cient bank loans can reduce the
value of borrowing ?rms when the expropriation of minority share-
holders by controlling shareholders is a major concern. Using data
from Chinese ?nancial market, we ?nd that bank loan announcements
generate signi?cantly negative abnormal returns to borrowing ?rms.
The share devaluation following loan announcements are concentrated
in ?rms that are perceived to be more vulnerable to controlling share-
holders?expropriation. In addition, we ?nd weak evidence that bank
quality mitigates the negative market reactions.
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