Trust or Opportunity? Managing Corporate Lending Networks if Institutions Are Weak

Abstract : That social capital matters in corporate lending relations is uncontested. While the literature has largely focused on the quality of dyadic firm-bank ties in explaining corporate credit access, we suggest a supply side perspective of lending networks surrounding individual corporations. Our theory predicts that corporations benefit from network closure in their lending networks, but less so, if institutional conditions surrounding the firm guarantee the predictable enforcement of credit contracts. We use a panel of 515 corporations listed on China’s Stock Exchanges holding a total of 7009 major bank loans granted by 183 distinct banks during the period from 2007 to 2012 to test our theoretical framework. Our findings support the hypothesized positive effect of closure. Our findings also robustly confirm that closure offers fewer advantages if the institutional environment provides credible mechanisms helping to produce institutionalized trust between contract partners. These findings are robust to various specifications. More generally our findings contribute to the relational lending literature as well as an emerging literature highlighting how the interplay between network structures and formal institutions shapes individual and corporate strategies.

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Are Women Better Directors in the Boards?

Abstract : Gender balance law was adopted in 2005 and went into effect in January 2006 with a two year deadline for compliance in Norway. It has compelled all public limited firms to ensure gender balance at their boards, otherwise face liquidation. While many public companies have made changes in their boards, a considerable number of them, have tried to circumvent the regulation by changing their organization form. The ones that complied with this new regulation have changed their board compositions by including more women. In this work, we investigate the implications of this restructuring. We examine how including more women directors affects the company fundamentals. We look at two distinct dimensions. First, we see impact of their monitoring role at the boards, and whether their inclusion correspond with any corporate finance policy changes or firm fundamentals. Second, we comparatively scrutinize what has become different for companies that have managed to bypass the gender balance legislation. We utilize a unique database we constructed from the Norwegian Administrative database, which comprises financial information of public and private firms, as well as board and top-level executive variables from 2002 to 2012. In terms of value, we find higher female share in the boards to be correlated with higher Tobin's Q values, even when we control for firm and year specific effects. Further empirical results show that women are instrumental in curbing the executive compensation, and in protecting shareholder interests by improving the payout to shareholders.

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Corporate Governance and the Rise of Integrating Corporate Social Responsibility Criteria in Executive Compensation: Antecedents and Outcomes

Abstract : This study examines the antecedents and consequences of integrating corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. Using a novel database of CSR contracting, we find that CSR contracting is more prevalent in emission-intensive industries and has become more prevalent over time. We further find that the adoption of CSR contracting leads to i) a reduction in short-termism; ii) an increase in firm value; iii) an increase in social and environmental performance; iv) a reduction in emissions; and v) an increase in green innovations. These findings are consistent with our theoretical arguments highlighting a new form of agency conflict--the misalignment between shareholders' and managers' preferences for stakeholder engagement--and suggest that CSR contracting can enhance corporate governance.

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