Throwing Good Money After Bad? Board Connections and Conflicts in Bank Lending
This paper investigates the frequency of connections between banks and non-financial firms through board linkages and whether those connections affect lending and borrowing behavior. Although board linkages may reduce the costs of information flows between the lender and borrower, a board linkage may generate pressure for special treatment of a borrower not normally justifiable on economic grounds. To address this issue, the paper first documents that banks is heavily involved in the corporate governance network through frequent board linkages.