Bank connections and corporate risk-taking: evidence from China^*

^*Accepted by Yin-Wong Cheung.

Abstract

This paper examines the impact of bank connections on corporate risk-taking. The results show that firms with bank connections exhibit a higher degree of corporate risk-taking than firms without bank connections, and that the difference is more prominent in provinces with a poor financial environment. Specific types of bank connections – executive and cross-shareholding connections – are further examined and we find that the effect only exists in firms with executive and bank-holding connections, not in firms connected to banks as shareholders. This demonstrates that having bank connections prompts firms to undertake more risk-taking projects and increases the magnitude of corporate risk-taking.

Keywords:

• Bank connections
• corporate risk-taking
• financing capability
• related loans
• financial environment

JEL classification codes:

• G21
• G32
• L14
• O16
• P48

Disclosure statement

The authors have no conflicts of interest to declare.

Notes

^* Accepted by Yin-Wong Cheung.