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Unformatted text preview: trated shareholdings in their aﬃliated ﬁrms, lending to these ﬁrms would
certainly violate the law. Such a lending practice is easily be checked since these ﬁrms are
We explore how board connections aﬀect long term lending in Table 7. Speciﬁcation (1)
focuses on the eﬀect of the presence of any board connections between ﬁrms and banks. The
dummy variable, Board connections, captures this eﬀect. The estimated coeﬃcient on Board
connections is positive as expected, but is weakly signiﬁcant at the 11 percent level. When
we separate the board connections into two categories: Connections at the executive and non
executive levels, the eﬀects of the board connections appear to be stronger. The results are
shown in Speciﬁcation (2) and (3). The dummy variables Banker as executives and Banker as
non executives indicate these two levels of the board links. The coeﬃcient estimate on Banker as
non executives is positive and strongly signiﬁcant at the 5 percent level (Speciﬁcation (3)), while
the coeﬃcient on Banker as executives is also positive and signiﬁcant at the 10 percent level
(Speciﬁcation (2)). These ﬁndings support our hypothesis that banks provide some preferential
access to long term loans to ﬁrms that have representatives of banks among their boards.
Regarding the eﬀects of ﬁrm characteristics on the choices of long term borrowing, we ﬁnd
weak support for the hypothesis that ﬁrms with high agency costs are likely to use less long
term bank debt. Somewhat surprisingly, the coeﬃcient estimates associated to only two ﬁrm
characteristics factors are signiﬁcant. The coeﬃcients on ﬁrm size and the ﬁxed asset ratio
are consistently signiﬁcant at the conventional levels in all models. Other ﬁrm characteristics,
however, are consistently insigniﬁcant.
These results indicate that ﬁrm size and type of assets do matter in such a way that size
17 and ﬁxed assets extend the debt maturity structure. Large ﬁrms have more access to long term
loans probably because they have smaller information asymmetries or more diversiﬁed. The
results also suggest that ﬁrms may use their tangible assets as collateral to support long term
Besides, size and tangible assets other ﬁrm characteristics that are often found to be empirically important determinants of debt maturity structure in more advanced economies, however,
do not appear to have any material eﬀect on long term borrowing choices of Thai ﬁrms.
[Insert Table 6 Here]
[Insert Table 7 Here] 4.2 How crony relationships increase long term loans In this section, we investigate how crony relationships work to enable ﬁrms to raise more long
term loans even though the ﬁrm characteristic factors might not support such decisions. For
example, the debt literature suggests that smaller ﬁrms should be associated with less long
term loans as they are less diversiﬁed or face higher information asymmetry. However this size
eﬀect on the choices of...
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This document was uploaded on 02/28/2014 for the course ECONOMICS fn314 at Harvard.
- Fall '13