Online citations, reference lists, and bibliographies.
Please confirm you are human
(Sign Up for free to never see this)
← Back to Search

Do Strong Corporate Governance Firms Still Require Political Connection, And Vice Versa?

C. Shen, Chih-Yung Lin, Yu-Chun Wang
Published 2015 · Economics

Save to my Library
Download PDF
Analyze on Scholarcy
Share
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.
This paper references
10.2139/SSRN.1108309
Does Regulation Substitute or Complement Governance
David A. Becher (2011)
10.2308/ACCR.2008.83.1.1
Accounting Quality and Debt Contracting
Sreedhar T. Bharath (2008)
10.2139/SSRN.956329
Corporate Governance and Regulation: Can There Be Too Much of a Good Thing?
V. Bruno (2006)
10.1016/J.JFINECO.2009.10.004
Political Rights and the Cost of Debt
Yaxuan Qi (2009)
10.2139/ssrn.501662
How Law and Institutions Shape Financial Contracts: The Case of Bank Loans
J. Qian (2004)
10.2139/SSRN.597701
Performance Pricing in Bank Debt Contracts
P. Asquith (2005)
Evidence from Chinese private firms
Y. Ma (2011)
Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches
Mitchell A. Petersen (2009)
10.1093/QJE/120.3.1121
Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation
Efraim Benmelech (2004)
10.1016/J.JDEVECO.2007.03.001
Political connections, financing and firm performance: Evidence from Chinese private firms ☆
H. Li (2008)
10.1016/J.JFI.2011.06.003
Why government banks underperform: A political interference view
C. Shen (2012)
10.1111/0022-1082.00168
CEO Involvement in the Selection of New Board Members: An Empirical Analysis
A. Shivdasani (1999)
10.2307/2676240
The Determinants of Contract Terms in Bank Revolving Credit Agreements
S. A. Dennis (2000)
10.1111/1468-5957.00460
Corporate Ownership Structure and the Informativeness of Earnings
Gillian H.H. Yeo (2002)
Corporate governance and financial distress: Evidence
S T. (2004)
10.1093/RFS/HHP073
How Law Affects Lending
R. Haselmann (2006)
10.1016/J.JACCECO.2004.01.004
Board Characteristics, Accounting Report Integrity, and the Cost of Debt
R. C. Anderson (2004)
10.1111/J.1540-6261.1968.TB00843.X
FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY
E. I. Altman (1968)
10.1016/J.JBANKFIN.2004.07.004
Commitment or Entrenchment?: Controlling Shareholders and Board Composition
Y. Yeh (2004)
10.1016/S0304-405X(98)00003-8
Larger board size and decreasing firm value in small firms 1 We wish to thank Asiakastieto Oy for fu
T. Eisenberg (1998)
Credit Markets, Board Size, and Board Composition
J. Stecher (2011)
10.2139/ssrn.891426
Do Politically Connected Boards Affect Firm Value?
E. Goldman (2006)
10.2139/ssrn.631703
Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market
Atif R. Mian (2004)
10.2307/2118354
Politicians and Firms
A. Shleifer (1994)
10.1257/AER.91.4.1095
Estimating the Value of Political Connections
Raymond J. Fisman (2001)
10.2469/dig.v27.n2.79
An Empirical Analysis of the Relation between Board of Director Composition and Financial Statement Fraud
Mark Beasley (1998)
10.1111/0022-1082.00115
Corporate Ownership Around the World
R. L. Porta (1999)
10.1016/J.IREF.2014.11.016
Corporate governance and risk-taking of Chinese firms: The role of board size
Y. Huang (2015)
10.1016/J.JFINECO.2010.10.012
Ownership Structure and the Cost of Corporate Borrowing
C. Lin (2011)
10.2139/SSRN.291056
Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors
S. Bhojraj (2001)
10.1016/S0304-405X(00)00067-2
The Separation of Ownership and Control in East Asian Corporations
S. Claessens (2000)
Evidence from China
E. Goldman (2009)
10.1016/J.JBANKFIN.2010.08.001
Effect of collateral characteristics on bank performance: Evidence from collateralized stocks in Taiwan.
A. Chen (2011)
10.1016/S0165-4101(02)00047-2
Corporate ownership structure and the informativeness of accounting earnings in East Asia
Joseph P. H. Fan (2002)
10.1016/J.JFINECO.2006.11.003
Political Connections and Preferential Access to Finance: Role of Campaign Contributions
S. Claessens (2007)
10.1111/J.1755-053X.2008.00007.X
Ownership Structure and IPO Valuation—Evidence from Taiwan
Y. Yeh (2008)
10.1016/J.IREF.2014.01.006
Why do firms allow their CEOs to join trade associations? An embeddedness view
Ju-Fang Yen (2014)
10.1016/j.jfineco.2006.03.008
Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms
Joseph P. H. Fan (2007)
10.1111/J.1467-8683.2004.00379.X
Corporate Governance and Financial Distress: Evidence from Taiwan
T. Lee (2004)
10.1111/j.1540-6261.1993.tb04022.x
The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems
M. Jensen (1993)
10.2139/ssrn.423820
Creditor Rights, Enforcement, and Bank Loans
Kee-Hong Bae (2007)
10.1016/0304-405X(88)90053-0
Outside directors and CEO turnover
M. Weisbach (1988)
10.1111/J.1540-6261.2006.01000.X
Political Connections and Corporate Bailouts
M. Faccio (2005)
10.2139/SSRN.940790
Corporate Political Contributions and Stock Returns
M. J. Cooper (2010)
10.2307/1912934
A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity
H. White (1980)
10.1016/J.IREF.2013.05.017
Cash dividends, expropriation, and political connections: Evidence from China
Zhong-qin Su (2014)
Corporate governance: The other side of the coin
N. Dayton (1984)
10.1016/J.JIMONFIN.2009.01.002
Political Connections and the Process of Going Public: Evidence from China
Bill Francis (2009)
10.2139/ssrn.966379
The Quality of Accounting Information in Politically Connected Firms
P. Chaney (2009)
10.1111/J.1540-6261.1986.TB05046.X
Loan Commitment Contracts, Terms of Lending, and Credit Allocation
A. Melnik (1986)
10.1016/J.JFINECO.2002.10.002
The effects of government ownership on bank lending
P. Sapienza (2004)
Politically connected CEOs, corporate governance
J.P.H (2007)
10.1007/S10693-013-0167-1
The Benefits of Political Connection: Evidence from Individual Bank-Loan Contracts
Y. Chen (2014)
10.1016/J.JBANKFIN.2011.12.011
Political connection and cost of debt: Some Malaysian evidence
Mark A. Bliss (2012)
10.2139/SSRN.495853
Do Shareholder Rights Affect the Cost of Bank Loans
S. Chava (2009)
10.1016/J.JFINECO.2004.06.011
Politicians and Banks: Political Influences on Government-Owned Banks in Emerging Markets
I. Dinç (2005)
10.1016/J.JFINECO.2007.08.005
Corporate Misreporting and Bank Loan Contracting
J. Graham (2007)
10.1108/02686901111129562
Political connections, corporate governance and audit fees in Malaysia
Effiezal Aswadi Abdul Wahab (2011)
10.1016/S0304-405X(98)00058-0
Corporate governance, chief executive officer compensation, and firm performance 1 The financial sup
J. Core (1999)
10.1257/000282806776157704
Politically Connected Firms
M. Faccio (2003)
10.1016/J.IREF.2014.01.004
Financial crisis and the dynamics of corporate governance: Evidence from Taiwan's listed firms
I. Chen (2014)
10.1007/S10693-013-0168-0
The Government’s Role in Government-owned Banks
C. Shen (2014)



This paper is referenced by
10.1016/J.IREF.2017.10.027
The Value of Political Connection: Evidence from the 2011 Egyptian revolution
Vinh Q. T. Dang (2017)
10.1108/IJMF-01-2017-0010
Political connections, ownership structure and quality of governance
S. Dicko (2017)
Effect of Corporate Governance on Cash Holding: The Role of Product Market Competition
I. Shah (2018)
10.1111/jbfa.12440
Government contracts and US bond yield spreads: A study on costs and benefits of materialized political connections
Thanh Ngo (2020)
10.1080/1540496X.2019.1612362
The Effect of Political Connections: Model Analysis and Quantitative Simulation
X. Zhao (2019)
10.3390/SU11020327
Corporate Political Ties and Firm Value: Comparative Analysis in the Korean Market
C. Chung (2019)
10.1080/13504851.2017.1420877
Market risk disclosures, corporate governance structure and political connections: evidence from GCC firms
Ahmed Alhadi (2018)
10.1111/ACFI.12331
Political connections of the board of directors and credit financing: evidence from Chinese private enterprises
Hongfeng Peng (2017)
10.1016/J.IREF.2016.09.003
Social trust and stock price crash risk: Evidence from China
Chunfang Cao (2016)
10.1016/J.CYA.2017.05.007
The relationship between corporate governance and foreign ownership of the banks in developing countries
K. Tunay (2017)
10.1111/corg.12261
Politicians in the Boardroom: Is it a Convenient Burden?
B. Pascual-Fuster (2018)
The Impact of Board of Directors Characteristics on Banks Performance: Evidence from Jordan
A. AlQudah (2019)
10.1002/IJFE.1644
External sources of political connections: Financial advisors and Chinese acquisitions
Xiaogang Bi (2018)
10.1016/J.FRL.2019.08.015
The association between political connection and stock price crash risk: Using financial reporting quality as a moderator
Tzu-Yi Fang (2020)
10.1108/jaee-08-2018-0086
Can self-regulation work in environments of high corruption?
Fatima Yusuf (2019)
10.1057/S41310-016-0001-8
Ceci n'est pas une pipe! Corporate Governance practices under two political regimes in Bangladesh: A political economy perspective
M. Nurunnabi (2016)
10.1016/J.IREF.2016.03.010
Government protection, political connection and management turnover in China
L. Cheng (2016)
10.1016/J.IREF.2018.08.023
CEO effects on the IPO market under different policy regimes: Evidence from the Chinese SME board
Yuanjing Ge (2019)
10.1016/J.IREF.2016.10.011
Politically connected lending, government capital injection, and bank performance
R. Jou (2017)
10.22547/BER/9.1.9
Board Characteristics, Political Connections, and Corporate Cash Holdings: The Role of Firm Size and Political Regime
Sabeeh Ullah (2017)
10.1016/J.INTACCAUDTAX.2019.05.001
The impact of corporate governance and political connections on information asymmetry: International evidence from banks in the Gulf Cooperation Council member countries
A. Tessema (2019)
10.15294/jdm.v8i2.12766
A Recent Literature Review on Corporate Political Connections
Irwan Trinugroho (2017)
10.1016/J.IREF.2016.12.008
Overvaluation and the cost of bank debt
Chyi-Lun Chiou (2017)
10.1108/ijpsm-01-2019-0029
Firm borrowing capacity, government ownership and real earnings management
Mouna Ben Rejeb Attia (2019)
10.1177/0972150919876520
Corporate Governance, Political Connections and Firm Performance: The Role of Political Regimes and Size:
Sabeeh Ullah (2020)
10.2139/ssrn.3241994
The Effects of Politically Connected Audit Committees on the Audit Process: Evidence in Malaysia
N. Jamil (2018)
The effect of political connections on earnings management: The evidence from government suppliers
T. Ngo (2017)
10.3390/su12052031
The Role of Political Collusion in Corporate Performance in the Korean Market
Daeheon Choi (2020)
10.1016/J.JBANKFIN.2020.106008
False Hopes and Blind Beliefs: How Political Connections Affect China's Corporate Bond Market
D. Schweizer (2020)
10.1111/1468-0106.12309
Do networks or performance impact the promotion of Chinese officials? Evidence from prefecture‐level cities
C. Lu (2020)
Semantic Scholar Logo Some data provided by SemanticScholar