A quantile regression analysis on corporate governance and the cost of bank loans: a research note

Wuchun Chi (Department of Accounting, National Chenchi University, Taipei, Taiwan)
Huichi Huang (College of Business, Oregon State University, Corvallis, Oregon, USA)
Hong Xie (Von Allmen School of Accountancy, University of Kentucky, Lexington, Kentucky, USA)

Review of Accounting and Finance

ISSN: 1475-7702

Publication date: 9 February 2015

Abstract

Purpose

This paper aims to investigate whether there is heterogeneity in the relationship between the bank loan interest rate and its determinants using the quantile regression method and to reconcile some conflicting findings in prior literature.

Design/methodology/approach

First, the effects of 18 determinants were examined on the bank loan interest rate using the ordinary least squares method (OLS). Second, it was investigated whether the relationship between the loan rate and its determinants is heterogeneous across quantiles of loan rates using the quantile regression method.

Findings

Considerable heterogeneity was found in the relationship between the loan rate and its determinants. Specifically, a determinant that is beneficial for the bank loan rate, on average, as revealed by the OLS method may become unimportant or even detrimental for firms located at extremely high or low loan rate quantiles. By revealing extreme heterogeneity in the relationship between the loan rate and some of its determinants, the authors potentially explain two conflicting findings in prior literature.

Originality/value

The conventional OLS method masks the heterogeneity in the relationship between the bank loan interest rate and its determinants. Quantile regression can be used to supplement the OLS estimates to gain a more detailed and complete picture of the relationship between the dependent variable and explanatory variables.

Keywords

Acknowledgements

The authors thank Chung-Yuan Hsu, Chan-Jane Lin, Su-Ming Lin, Alfred Liu, Shui-Liang Tung, Taychang Wang and workshop participants at National Chenchi University and National Taiwan University for helpful comments and suggestions. Wuchun Chi gratefully acknowledges financial support from National Science Council (Project No. NSC 96-2416-H-004-035-MY3). Hong Xie gratefully acknowledges financial support from the Von Allmen Research Support endowment and thPWC Fellowship endowment at University of Kentucky.

Citation

Chi, W., Huang, H. and Xie, H. (2015), "A quantile regression analysis on corporate governance and the cost of bank loans: a research note", Review of Accounting and Finance, Vol. 14 No. 1, pp. 2-19. https://doi.org/10.1108/RAF-12-2012-0126

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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