The controlling shareholder’s personal stock loan and firm performance
نویسندگان
چکیده
This paper studies companies that have a controlling shareholder. In particular, it examines the relationship between firm performance and its controlling shareholder’s personal loan. We present a model to identify two effects of a personal loan that is secured by stocks. The loan can be beneficial ex ante, because it relaxes the wealth constraint of controlling shareholders and allows firms to invest in good projects. The loan can also be harmful ex post, because it will create an incentive for controlling shareholders to pursue risky projects. We use a sample of listed companies in Taiwan to test our hypotheses and find consistent evidence. JEL: G32 Corresponding, attending, and presenting author: Shing-yang Hu, Department of Finance, National Taiwan University, 50, Lane 144, Sec.4, Keelung Road, Taipei, Taiwan 106, R.O.C. Tel.: +886 2 2366-1299; Fax: +886 2 2366-0764; e-mail: [email protected]
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