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Motivated by the international business literature that examines the interactions between organizations, corruption, and political forces, we examine whether and how government connections affect small and medium-sized enterprises' (SMEs) credit access around the world. Using a sample of SMEs across 30 developing countries, we show that SMEs with government connections are significantly less likely to be discouraged from approaching banks for a loan as compared to SMEs without such connections. However, connected SMEs do not receive preferential lending from banks. Moreover, the nature of this effect depends on the institutional setting. Specifically, the effect becomes stronger in countries with high levels of corruption, suggesting that government connections are substitutes for poorly functioning formal institutions. Our findings have important implications for policies targeted at reducing corruption, improving access to financing, facilitating entrepreneurship, and attracting foreign investment.

AbstractManuscript TypeEmpiricalResearch Question/IssueThis study seeks to understand how the characteristics of executive directors affect the market performance of US banks. To explore the expected performance effects linked to executive characteristics, we measure any changes in the market valuation of banks linked to announcements of executive appointments.Research Findings/InsightsOur study has two important findings. First, we show that age, education, and the prior work experience of executives create shareholder wealth while gender is not linked to measurable value effects. Second, these wealth effects are moderated by the level of influence of incoming executives, with their magnitude diminished under independent boards and higher if the incoming executive is also appointed as CEO. Our results are robust to the treatment of selection bias.Theoretical/Academic ImplicationsBy illustrating the wealth effects linked to executive appointments, our study contributes to the current debate on whether and how individual executives matter for firm performance and behavior. The findings also shed light on the value of human capital in the banking industry.Practitioner/Policy ImplicationsThis study offers important insights to policymakers charged with ensuring the competency of executives in banking. Our findings advocate policies that mandate banks to appoint highly qualified executives with relevant banking experience.

Using the adoption of Zombie Property Law (ZL) across several US states, we show that increased lender accountability in the foreclosure process affects mortgage lending decisions and standards. Difference-in-differences estimations using a state border design show that ZL incentivizes lenders to screen mortgage applications more carefully: they deny more applications and impose higher interest rates on originated loans, especially risky loans. In turn, these loans exhibit higher ex-post performance. ZL also affects lender behavior after borrowers become distressed, causing them to strategically keep delinquent mortgages alive. Our findings inform the debate on policy responses to foreclosure crises.