Agency costs in an emerging market : investigating business groups

Positive abnormal returns around loan announcements imply that banks have unique expertise in information production about borrowers. I study abnormal returns around loans that Turkish listed firms secure from international markets between 2003 and 2016 two investigate two research questions. Do listed firms controlled by business groups have higher agency costs when compared to stand-alone firms? Does control through pyramid ownership structures increase agency costs of business group listed firms? I hypothesize that controlled for other factors, abnormal returns around loan announcements measure agency costs associated with borrowers because new information provided by bank loans lead to the higher revaluation for business group firms that bear agency costs. I provide evidence that when business group firms are positioned within pyramid ownership structures they realize higher abnormal returns when benchmarked against stand-alone firms and business group firms that are not positioned within pyramids. Therefore, my results indicate market perception towards pyramid ownership structures in increasing tunneling incentives within business groups.