To absolutely distinguish the ownership eect from the

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Unformatted text preview: might be established unconditionally on firm characteristic factors. In other words, the crony view suggests that the crony relationship might overwhelm the firm characteristic factors. 21 To explore this issue more systematically, we follow the methodology used by Kroszner and Strahan (2001a and 2001b). We use a probit model in which the dependent variable is one if the firm has at least one person on its board connected to those of banks. The probit regression results on the determinants of the incidence of the board connections are shown in Table 10. In Specification (1), we test how the board connections varies with firm characteristics. The firm characteristics are the same set of variables as described in Section 3.3. The reported results are the marginal effects of a one unit change from the mean of each independent variable on the probability of having a board connection with banks. Similar to the US banks shown in Kroszner and Strahan (2001a and 2001b), Thai banks also have the connections with larger firms and less indebted firms. Asset tangibility, growth and sale volatility, however, are not related to the probability of having the board connections. These results somewhat supports the conflicts of interest argument. Next, we investigate whether the crony relationship attributes to the incidence of having the board connections. In Specification (2), we include two dummies representing firms that are owned by the two groups of the influential families: Influential families with bank and Influential families without bank. Interestingly, our results show that the connections are the most prevalent at the crony firms affiliated to these two groups of influential families. Further investigation on the data reveals that firms owned by the influential families who own banks are always connected to the boards of banks. In most of the cases, the persons who serve on the board of banks and firms are the firms’ controlling shareholders and their families. We investigate further to check whether the effects of firm characteristics on the likelihood of having the board connections attenuate or even disappear in the case of crony firms or not. To absolutely distinguish the ownership effect from the crony effect, we examine the case when firms that are affiliated to the influential families that do not own banks. Similar to the methodology used in Section 4.2, we interact Influential families without bank with the five firm characteristics. Consistent with the crony view, the incidence of having the connection with the influential families are almost not related to the firm characteristics (Specification (3)). When banks build a connection with non crony firms, banks appear to have the board connections with large and less indebted firms. In contrast, banks seem to pay less attention to firm’s size and the level of indebtedness when they establish a connection with the crony firms. Banks appear to have the connection with firms that owned by the influential families even if they are smaller. The effect of leverage on the presence of the connections disappears when the 22 influential families are concerned. To test the robustness of this ...
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This document was uploaded on 02/28/2014 for the course ECONOMICS fn314 at Harvard.

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