Does Regulatory Forbearance On Bank Loans Adversely Impact Governance of Borrowing Firms?: The Indian Experience

72 Pages Posted: 24 Jan 2021 Last revised: 4 Feb 2022

See all articles by Yakshup Chopra

Yakshup Chopra

University of Miami - Department of Finance

Naman Nishesh

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Prasanna L. Tantri

Indian School of Business

Date Written: November 1, 2020

Abstract

We ask whether regulatory forbearance on bank loan loss recognition contributes to deterioration in the governance of borrowing firms. More exposed firms experience a reduction in board independence and external monitoring, an increase in management compensation including transactions with connected entities, an increase in board similarity and CEO duality, and a change in auditors. Their investment in shareholder value-destroying unrelated projects, which show a higher tendency to stall, increases. Thus, the ability of a borrowing firm’s management to benefit from the forbearance increases its influence within the firm and dilutes governance controls. We highlight a hitherto unexplored cost of forbearance.

Suggested Citation

Chopra, Yakshup and Nishesh, Naman and Tantri, Prasanna L., Does Regulatory Forbearance On Bank Loans Adversely Impact Governance of Borrowing Firms?: The Indian Experience (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=3739836 or http://dx.doi.org/10.2139/ssrn.3739836

Yakshup Chopra

University of Miami - Department of Finance

5250 University Drive
514N, Jenkins Building
Coral Gables, FL 33146-6552
United States

Naman Nishesh (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

McColl Building
South Campus, UNC
Chapel Hill, NC NC 27599-3490
United States

HOME PAGE: http://https://www.kenan-flagler.unc.edu/

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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