Does Regulatory Forbearance On Bank Loans Adversely Impact Governance of Borrowing Firms?: The Indian Experience

58 Pages Posted: 24 Jan 2021

See all articles by Yakshup Chopra

Yakshup Chopra

Washington University in St. Louis - John M. Olin School of Business

Naman Nishesh

Indian School of Business

Prasanna L. Tantri

Indian School of Business

Date Written: November 2020

Abstract

We ask whether regulatory forbearance on bank loans contributes to deterioration in the governance of borrowing firms. More exposed firms experience a reduction in board independence and external monitoring, an increase in management compensation including transactions with connected entities, an increase in board similarity and CEO duality, and a change in auditors. Their exposure to less value-adding unrelated projects, which show a higher tendency to stall, increases. Thus, the ability of the borrowing firms’ management to benefit from forbearance increases its influence within the firm and loosens governance controls. Consequently, competition and entry at the industry level decline.

Suggested Citation

Chopra, Yakshup and Nishesh, Naman and Tantri, Prasanna L., Does Regulatory Forbearance On Bank Loans Adversely Impact Governance of Borrowing Firms?: The Indian Experience (November 2020). Available at SSRN: https://ssrn.com/abstract=3739836 or http://dx.doi.org/10.2139/ssrn.3739836

Yakshup Chopra

Washington University in St. Louis - John M. Olin School of Business ( email )

St. Louis, MO 63130
United States

Naman Nishesh (Contact Author)

Indian School of Business ( email )

Indian School of Busines
Gachibowli
Hyderabad, Telangana 500032
India
+91-7477799444 (Phone)

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

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