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The allocation of credit by banks and financial institutions on 'soft' terms to friends and relatives rather than on the basis of 'hard' market criteria in the years leading up to the East Asian crisis of 1997-98 has been widely noted. Using a detailed dataset on Thai firms prior to the crisis period we examine whether business connections were in fact a good predictor of preferential access to long term bank credit. We find that firms with connections to banks and politicians had greater access to long-term debt than firms without such ties. Connected firms need much less collateral to obtain long term loans than those without connections.Such firms obtain more long term loans, and appear to use less short term loans. We do not find support for the existence of connections between banks and firms serving to reduce asymmetric information problems. Our results thus lend support to the hypothesis that the presence of connections was the most important factor determining access to long term bank debt prior to the financial crisis and are consistent with recent research implicating weak corporate governance in the extent and severity of the crisis.JEL Classification: G30, G32

This study investigates the effects of controlling shareholders on corporate performance. The empirical results, based on a unique database of Thai firms, do not support the hypothesis that controlling shareholders expropriate corporate assets. In fact, the presence of controlling shareholders is associated with higher performance, when measured by accounting measures such as the ROA and the sales-asset ratio.Since most of the firms do not implement control mechanisms to separate voting and cash flow rights, the controlling shareholders might be self-constrained not to extract private benefits. Otherwise, they would internalize higher costs of expropriation from holding high stakes. The controlling shareholders' involvement in the management, however, has a negative effect on the performance. The negative effect is more pronounced when the controlling shareholder-and-manager's ownership is at the 25-50 percent.The evidence also reveals that family controlled firms display significantly higher performance. Foreign controlled firms as well as firms with more than one controlling shareholder also have higher ROA, relative to firms with no controlling shareholder.JEL Classification: G30, G32

This paper investigates a little studied but common mechanism that …rms use to obtain state favors: business owners themselves seeking election to top o¢ ce. Using Thailand as a research setting, we …nd that the more business owners rely on government concessions or the wealthier they are, the more likely they are to run for top o¢ ce. Once in power, the market valuation of their …rms increases dramatically. Surprisingly, the political power does not in ‡uence the …nancing strategies of their …rms. Instead, business owners in top o¢ ce use their policy-decision powers to implement regulations and public policies favorable to their …rms. Such policies hinder not only domestic competitors but also foreign investors. As a result, these politically connected …rms are able to capture more market share.

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This paper presents the first empirical evidence showing that the marriage of a member of the controlling family adds value to public corporations. The results, based on a uniquely comprehensive data set from Thailand, show that the family firm’s stock price increases when the partner is from either a prominent business or a political family. Abnormal returns tend to be higher for firms whose operation depends on extensive networks. In contrast, marriages to ordinary citizens are not associated with any abnormal returns. These findings are generally supportive of the value of networks in general and marriage in particular.

Family firms depend on a succession of capable heirs to stay afloat. If talent and IQ are inherited, this problem is mitigated. If, however, progeny talent and IQ display mean reversion (or worse), family firms are eventually doomed. Since family firms persist, solutions to this succession problem must exist. We submit that marriage can transfuse outside talent and reinvigorate family firms. This implies that changes to the institution of marriagenotably, a decline in arranged marriages in favor of marriages for "love"-bode ill for the survival of family firms. Consistent with this, the predominance of family firms correlates strongly across countries with plausible proxies for arranged marriage norms.

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