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Credit Stimulus, Executive Ownership, and Firm Leverage

Author

Listed:
  • Rajdeep Chakraborti

    (IE Business School, IE University, 28006 Madrid, Spain)

  • Sandeep Dahiya

    (Georgetown University, McDonough School of Business, Washington, District of Columbia 20057)

  • Lei Ge

    (Renmin University of China, Haidian District, Beijing 100872, China)

  • Pedro Gete

    (IE Business School, IE University, 28006 Madrid, Spain)

Abstract

We show that executive ownership is a significant driver of the demand for credit following credit expansion policies. Our focus on credit demand is in contrast to most studies that have focused on credit supply factors such as bank capital. Our identification exploits the large and unexpected Chinese credit expansion in 2008. This setting offers a unique advantage as in 2008 the Chinese government had almost complete control over the banking sector and it directed the banks to increase credit supply. Thus, in this setting, demand, rather than supply, largely drives the observed changes in firms’ borrowing. We provide extensive robustness tests to validate our results.

Suggested Citation

  • Rajdeep Chakraborti & Sandeep Dahiya & Lei Ge & Pedro Gete, 2022. "Credit Stimulus, Executive Ownership, and Firm Leverage," Management Science, INFORMS, vol. 68(10), pages 7682-7700, October.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:10:p:7682-7700
    DOI: 10.1287/mnsc.2021.4188
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