Do strong corporate governance firms still require political connection, and vice versa?

Chung-Hua Shen, Chih-Yung Lin and Yu-Chun Wang

International Review of Economics & Finance, 2015, vol. 39, issue C, 107-120

Abstract: This study investigates whether a firm with strong corporate governance (CG) requires political connections (PCs), that is, we examine whether CG and PC substitute for or complement each other. Using 71,069 individual bank loan contracts from Taiwan, we examine how loan contracts are affected by CG, PC, or both. Our results show that firms with strong CG focus less on building PC. By contrast, politically connected firms are likely to demonstrate poor governance practices. In addition, favorable bank loan prices reduce when both PC and CG are simultaneously considered. All evidence supports the substitution effect.

Keywords: Corporate governance; Political connection; Bank loan contracts; Substitutes; Complements (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 G34 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:39:y:2015:i:c:p:107-120

DOI: 10.1016/j.iref.2015.06.006

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