Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5083514 | International Review of Economics & Finance | 2015 | 14 Pages |
Abstract
This study investigates whether a firm with strong corporate governance (CG) requires political connections (PCs), that is, we examine whether CG and PC substitute for or complement each other. Using 71,069 individual bank loan contracts from Taiwan, we examine how loan contracts are affected by CG, PC, or both. Our results show that firms with strong CG focus less on building PC. By contrast, politically connected firms are likely to demonstrate poor governance practices. In addition, favorable bank loan prices reduce when both PC and CG are simultaneously considered. All evidence supports the substitution effect.
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