Politically connected boards, ownership structure and credit risk: evidence from Chinese commercial banks

Abstract

This study explores whether the nature of ownership may condition the extent and impact of political connections on credit risk decisions. We find politically connected boards to exert significant influence on credit risk. Further evidence shows that ownership type of the bank moderates the link between politically connected boards and credit risk. Specifically, state owned banks appear to be more susceptible to credit risk while independent directors in private banks tend to be effective monitors. Our findings have important implications for bank stability and provide a means to measure the success of corporate governance reforms carried out in emerging countries over the past two decades