8-3 (A70)
Do Strong Corporate Governance Firms Still Require Political Connection? And
Vice Versa?
Chung-Hua
Shen
National Taiwan University, Taiwan
Yu-Chun
Wang
National Taiwan University, Taiwan
Chih-Yung
Lin
National Taichung University of Science and Technology, Taiwan
This study investigates whether a firm with strong corporate governance (CG)
requires the establishment of political connections (PC). Namely, we examine
whether CG and PC substitute for or complement each other. Using 71,069
individual bank loan contracts from Taiwan, we examine how the loan contracts
are affected by CG, PC and both of them. Our results show that firms with strong
CG focus less on building PC. Similarly, politically connected firms are likely
to demonstrate poor governance practices. Also, favorable terms decrease when
both PC and CG are simultaneously considered. All of these evidences supporting
the substitution effect.