Abstract

http://ssrn.com/abstract=293123
 
 

References (39)



 
 

Citations (10)



 


 



Throwing Good Money after Bad? Board Connections and Conflicts in Bank Lending


Randall S. Kroszner


Booth School of Business, University of Chicago; National Bureau of Economic Research (NBER)

Philip E. Strahan


Boston College - Department of Finance; National Bureau of Economic Research (NBER)

December 2001

U Chicago Law & Economics, Olin Working Paper No. 139

Abstract:     
This paper investigates the frequency of connections between banks and non-financial firms through board linkages and whether those connections affect lending and borrowing behavior. Although a board linkages may reduce the costs of information flows between the lender and borrower, a board linkage may generate pressure for special treatment of a borrower not normally justifiable on economic grounds. To address this issue, we first document that banks are heavily involved in the corporate governance network through frequent board linkages. Banks tend to have larger boards with a higher proportion of outside directors than non-financial firms, and bank officer-directors tend to have more external board directorships than executives of non-financial firms. We then show that low-information cost firms large firms with a high proportion of tangible assets and relatively stable stock returns - are most likely to have board connections to banks. These same low-information cost firms are also more likely to borrow from their connected bank, and when they do so the terms of the loan appear similar to loans to unconnected firms. In contrast to studies of Mexico, Russia and Asia where connections have been misused, our results suggest that avoidance of potential conflicts of interest explains both the allocation and behavior of bankers in the U.S. corporate governance system.

Number of Pages in PDF File: 48

Keywords: board of directors, banks, lending, corporate governance

JEL Classification: G2, G3

working papers series


Download This Paper

Date posted: December 10, 2001  

Suggested Citation

Kroszner, Randall S. and Strahan, Philip E., Throwing Good Money after Bad? Board Connections and Conflicts in Bank Lending (December 2001). U Chicago Law & Economics, Olin Working Paper No. 139. Available at SSRN: http://ssrn.com/abstract=293123 or http://dx.doi.org/10.2139/ssrn.293123

Contact Information

Randall S. Kroszner
Booth School of Business, University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8779 (Phone)
773-702-0458 (Fax)
HOME PAGE: http://gsbwww.uchicago.edu/fac/randall.kroszner/re
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Philip E. Strahan (Contact Author)
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)
HOME PAGE: http://www2.bc.edu/~strahan
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,144
Downloads: 361
Download Rank: 41,045
References:  39
Citations:  10

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.265 seconds