State-owned bank loan and stock price synchronicity/ Yanyan Wang

Both paternalism from governments and bank loans are sources of soft-budget constraints, which reduce information disclosure, including state-owned enterprises’ (SOEs’) perceived bankruptcy risk and operational risk, both of which may affect stock-price synchronicity. From a banking perspective, this paper investigates the effect of state-owned bank loans on stock-price synchronicity and whether such an effect is asymmetric in SOEs and non-SOEs. The results indicate that the percentage of loans from state-owned banks is positively related to stock-price synchronicity and that such a relationship is significantly weaker in non-SOEs than that in SOEs. When we further divide state-owned banks into policy banks and state-owned commercial banks and divide non-SOEs into firms with political connections and firms without political connections, the results show that the positive relation between loans from policy banks and stock-price synchronicity is higher than that of state-owned commercial banks, while the stock-price synchronicity of politically connected firms is the same as that of SOEs. Overall, these results indicate that soft-budget constraints are important factors that affect stock-price synchronicity.