Credit Stimulus, Executive Compensation, and Firm Leverage
Forthcoming in Management Science
45 Pages Posted: 10 Apr 2017 Last revised: 12 Sep 2022
Date Written: August 1, 2020
Abstract
We show that executive ownership is a significant driver of the demand for credit following credit expansion policies. Our focus on credit demand is in contrast to most studies that have focused on credit supply factors such as bank-capital. Our identification exploits the large and unexpected Chinese credit expansion in 2008. This setting offers a unique advantage as in 2008 the Chinese government had almost complete control over the banking sector and it directed the banks to increase credit supply. Thus, in this setting, demand, rather than supply, largely drives the observed changes in firms' borrowing. We provide extensive robustness tests to validate our results.
Keywords: China, Credit Policies, Executive Compensation, Leverage
JEL Classification: E44, G28, G30, G32, G34
Suggested Citation: Suggested Citation