Executive Loans, Corporate Governance, and Firm Performance - Evidence from Banks
33 Pages Posted: 4 Aug 2006 Last revised: 17 May 2010
Date Written: May 17, 2010
We explore the practice of extending loans to executives in a sample of about 10,000 U.S. commercial banks between 1994 and 2004. The aggregate amount of loans to executives in the sample exceeds $14 billion, with more than two thirds of the banks extending loans to their executives in any given year. We find that the likelihood of extending a loan is higher and the size of the loan is larger in banks with weaker governance structures. We also find that the predicted component of the loan arising from the firms’ weak governance characteristics has a statistically significant negative relationship with subsequent bank operating performance. Our evidence is consistent with the argument that agency conflicts are a driver of executive loans.
Keywords: Executive Loans, Agency Conflicts, Performance, Corporate Governance
JEL Classification: G21, G30, G34
Suggested Citation: Suggested Citation