Using a sample of 50 largest Chinese banks during the period of 2003–2010, we explore a comprehensive set of board characteristics (size, composition and functioning of the board) and analyze their impacts on bank performance and bank asset quality in China. We find that the number of board meetings and the proportion of independent directors have significantly positive impacts on both bank performance and asset quality while board size has a significantly negative impact on bank performance. We find new evidence that the degree of bank boards’ political connection is negatively correlated with bank performance and asset quality. The findings suggest that the board of directors plays a significant role in bank governance in China.

We examine foreign lenders’ use of performance pricing provisions (PPPs) in syndicated loan contracts. First, we find that foreign lenders, as a result of both higher information asymmetry and greater renegotiation costs than their domestic counterparts, adopt PPPs instead of tight covenants in their contracts. Second, foreign lenders have a greater preference for PPPs based on credit ratings as opposed to those based on accounting ratios than their domestic counterparts. This is consistent with informationally disadvantaged foreign lenders valuing rating-based PPPs’ signaling role, with the role of accounting-based PPPs addressing the hold-up problem being less relevant to them. In addition, the above effects mainly exist when foreign lenders serve as participants rather than lead arrangers in the syndicate. Overall, our findings establish the important role played by rating-based PPPs in addressing foreign participant lenders’ information asymmetry and thereby promoting cross-border lending.

This study examines the effects of trade liberalization on municipal financing costs. Using the granting of permanent normal trade relations (PNTR) to China as an exogenous shock, we find that U.S. counties that are more exposed to trade liberalization issue bonds with significantly higher tax-adjusted yield spreads. Moreover, these counties pay higher gross spreads and are less likely to issue bonds after PNTR. We also show that secondary market yield spreads increase significantly in response to the U.S. granting of PNTR to China. In addition, we provide evidence that a reduction in debt serving capacity serves as a channel underlying the trade shock effects. Our findings highlight the costs of trade liberalization for public finance.