Clawbacks and Cronyism: Evidence from China |
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| Authors: | Linda Allen Guangzhong Li |
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| Affiliation: | 1. Linda Allen is the William F. Aldinger Chair in Banking and Finance in the Zicklin School of Business, Bernard M. Baruch College, City University of New York, NY.;2. Guangzhong Li is a Professor at the Chinese Academy of Finance and Development, Central University of Finance and Economics. Beijing, China. |
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| Abstract: | This paper is the first to examine the long‐term impact on bank lending policy of clawbacks in executive compensation contracts. Using a hand‐gathered database of Chinese business lending, we find evidence of reduced cronyism at the Big Four Chinese banks during the period after the introduction of a clawback program, marking a shift from earlier studies covering earlier time periods that find evidence of widespread cronyism at the Big Four banks. Politically connected borrowers received fewer and smaller loans relative to non‐Big Four banks, consistent with a backlash against cronyism at the Big Four banks. In contrast, we find that cronyism persisted (i.e., politically connected borrowers received more and larger loans) at non‐Big Four Chinese banks where the clawback policy was not effective. |
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