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

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

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.

Original languageEnglish
Pages (from-to)107-120
Number of pages14
JournalInternational Review of Economics and Finance
Volume39
DOIs
StatePublished - 1 Sep 2015

Keywords

  • Bank loan contracts
  • Complements
  • Corporate governance
  • Political connection
  • Substitutes

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