Pierre Pessarossi

Choice of corporate debt in China: The role of state ownership

................................................................................................................................. 5 Tiivistelmä ............................................................................................................................. 6

Does CEO Turnover Matter in China? Evidence from the Stock Market

We study the consequences of CEO turnover announcements on the stock prices of firms in China, where most listed firms remain majority-owned by the state. Our proposition is that state ownership may affect stock market reaction to CEO replacement because state-owned firms often pursue multiple, potentially contradictory, objectives, i.e. economic performance and social objectives. Applying standard event study methodology to a sample of 1,094 announcements from 2002 to 2010, we find that CEO turnover typically produces a positive stock market reaction. The reaction is significantly positive, however, only for enterprises owned by the central government, and not significant for enterprises owned by local governments or privately owned enterprises. These results suggest that a CEO turnover in a central state-owned enterprise signals a renewed commitment to the economic performance objective by state officials. The small size of CEO labor market suggests that other shareholders have a relatively small pool of CEO talent to proceed to managerial improvement when a CEO turnover takes place.

Foreign bank lending and information asymmetries in China

This paper considers whether information asymmetries affect the willingness of foreign banks to participate in syndicated loans to corporate borrowers in China. In line with theoretical literature, ownership concentration of the borrowing firm is assumed to influence information asymmetries in the relationship between the borrower and the lender. We analyze how ownership concentration influences the participation of foreign banks in a loan syndicate using a sample of syndicated loans granted to Chinese borrowers in the period 2004-2009 for which we have information on ownership concentration. We observe that greater ownership concentration of the borrowing firm does not positively influence participation of foreign banks in the loan syndicate. Additional estimations using alternative specifications provide similar results. As foreign banks do not react positively to ownership concentration, we conclude that information asymmetries are not exacerbated for foreign banks relative to local banks in China. Moreover, it appears that increased financial leverage discourages foreign bank participation, suggesting that domestic banks are less cautious in their risk management.

Optimal capital, regulatory requirements and bank performance in times of crisis: Evidence from France

The recent implementation of the Basel III framework has re-ignited the debate around the link between capital, performance and regulatory capital requirements in the banking sector. There is a dominant view in the earlier empirical literature in favor of a positive effect of capital on banking performance. Using panel data gathered by the French supervisor, we also find evidence of the beneficial effect of higher capital but try to go one step further by distinguishing between regulatory and voluntary capital. Using a two-step estimation procedure, and controlling for many factors (risk, asset composition, etc), we show that voluntary capital, i.e. capital held by banks irrespective of their regulatory requirements, turns out to be the sole component of capital that affects performance positively. In contrast, the effect of regulatory capital on profitability appears insignificant, indicating that so far increasing capital requirements have not been detrimental to bank profitability in France.