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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 publicly traded. 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 loans. 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.

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