Executive Loans, Corporate Governance, and Firm Performance - Evidence from Banks

33 Pages Posted: 4 Aug 2006 Last revised: 17 May 2010

See all articles by Yaniv Grinstein

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Ajay A. Palvia

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: May 17, 2010

Abstract

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

Grinstein, Yaniv and Palvia, Ajay A., Executive Loans, Corporate Governance, and Firm Performance - Evidence from Banks (May 17, 2010). Available at SSRN: https://ssrn.com/abstract=921484 or http://dx.doi.org/10.2139/ssrn.921484

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Ajay A. Palvia (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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