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Equity incentive, political connection and bank loan in private enterprises

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  • Cai, Lingnan

Abstract

This paper analyzes the effect of political affiliation on the relationship between equity incentives and bank borrowing. Based on the data of listed companies in China that issued equity incentive announcements, we present evidence that: 1) Management equity incentives significantly increase firm's bank loans; 2) Compared to CEO stock ownership, the incentive model of implementing stock options or restricted stock has a more significant impact on corporate bank loans especially on obtaining short-term loans; and 4) Political connections is an informal mechanism affecting bank credit decisions and weakening the impact of equity incentives on bank loans.

Suggested Citation

  • Cai, Lingnan, 2023. "Equity incentive, political connection and bank loan in private enterprises," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004142
    DOI: 10.1016/j.frl.2023.104042
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    References listed on IDEAS

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