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Unformatted text preview: ndings, we drop 31 ﬁrms that are owned by the inﬂuential
families that own banks from our sample and re-estimate the probit model. Our results remain
the same (Speciﬁcation (4) and (5)). In an unreported regression, we ran a test that controls
for the size of the board. The regression was done by using the Tobit model, in which the
dependent variable is the ratio of the number of persons from a ﬁrm’s board who are serving on
the boards of banks divided by the number of persons in the ﬁrm’s board. Again, our results
are robust in term of signs, statistical signiﬁcance and magnitudes.
To sum up, the presence of the board connections is consistent with the crony view. The
probability of having the connections is strongly dependent on the crony relationship. When
banks build connections with the crony ﬁrms, ﬁrm characteristics seem to be much less important factors. For non crony ﬁrms, however, banks tend to build a connection with large and
less indebted ﬁrms in the same manner as in the US.
[Insert Table 10 Here] 5.2 Board connections: The case of ﬁrms that do not own banks Having shown that the board connection is the most prevalent in the ﬁrms in which their
controlling shareholders also own banks, we now investigate whether our results on the eﬀects
of the crony relationship on obtaining long term lending are robust if we exclude such ﬁrms
from our sample. By excluding the ﬁrms where their controlling shareholders own banks and
ﬁnance companies, we are able to discern the eﬀects of the crony relationship from the eﬀects
of the bank ownership. We repeat the regressions in Section 4.1 and Section 4.2 but exclude 31
ﬁrms in which the controlling shareholders own ﬁnancial institutions. The results are reported
in Table 11. Consistent with the previous ﬁndings, the results reveal that the board connections
both via executive and non executive levels are indeed beneﬁcial to the ﬁrms. The connected
ﬁrms seem to be able to obtain more long term loans.
We examine further whether the connections that bring favoritism to the ﬁrms are aﬀected
by the two characteristics of the connections: When the ﬁrms’ controlling shareholders sit on
the boards of banks, and when the board connections are formalized through other persons who
are not the controlling shareholders. There are 42 ﬁrms in the sample in which their controlling
shareholders and their families serve in the boards of ﬁnancial institutions, and 115 ﬁrms that 23 have either bankers on the ﬁrms’ board, or the ﬁrms’ executives and other directors serving on
the boards of banks.
To understand whether these two characteristics of the connections aﬀect the amount of
long term lending, we re-estimate the OLS regressions and include the dummy variables that
indicates these two types of board connections. The results are shown in Table 12. Similar to
the case of the ﬁrms controlled by the inﬂuential families with banks, the board connect...
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This document was uploaded on 02/28/2014 for the course ECONOMICS fn314 at Harvard.
- Fall '13