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Bank ownership and executive perquisites: New evidence from an emerging market

  • Luo, Wei
  • Zhang, Yi
  • Zhu, Ning

Direct bank ownership is a common practice in emerging markets. The current paper studies how bank ownership affects firm performance through corporate executive perquisites (perks) in China, a leading emerging economy. In addition to common factors known to influence the level of executive perks, we find a significantly positive link between bank ownership of company shares and executive perquisites. Further analyses suggest that higher level of executive perquisites hurt firm operating efficiency. Specifically, perks are positively associated with interest rate paid by the firms. We find some evidence consistent with the notion that the conflict of interests that banks face as both lenders and shareholders in the emerging markets induces banks to play less effective monitoring if they are concerned with the security of their loans or aim to obtain better arrangement for their loans. Our results reveal a particular mechanism through which bank ownership influences firm decisions and performance.

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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 17 (2011)
Issue (Month): 2 (April)
Pages: 352-370

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Handle: RePEc:eee:corfin:v:17:y:2011:i:2:p:352-370
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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