Page 235 - ES 2020-21_Volume-1-2 [28-01-21]

218 Economic Survey 2020-21 Volume 1

The equation includes fixed effects for firms as well as years. These fixed effects absorb any
unobserved variations in firms or across years that could influence the estimates.
The results are as below:

(1) (2) (3) (4) (5) (6) (7) (8)
Independent Similarity Banks’ Nominee
VARIABLES Directors CEO Duality In Board Directors

Treatment X
Post -0.008** -0.007** 0.012** 0.012*
(-2.587) (-2.196) (2.175) (2.192)
Treatment 0.02* 0.02* -0.005** -0.004**
(1.715) (1.70) (-3.835) (-3.053)

Controls No Yes No Yes No Yes No Yes

Observations 83,844 82,862 7,826 7,796 10,323 10,285 7,827 7,797
R-squared 0.835 0.835 0.253 0.256 0.707 0.704 0.045 0.055
Fixed Effects Firm and Year Year Firm and Year Year

Table 4: Table shows a difference-in-difference or single-difference specification to estimate
the change in the composition of boards within firms. Data are organized at a firm-year level
with years ranging from 2002 to 2015. Independent director represents the proportion of
independent directors. CEO duality is an indicator variable that takes the value of 1 if the
CEO is also the chairman of the board and 0 otherwise. Similarity in board captures the
within-board connectedness based on the cosine similarity of texts in biographies of all
members in the board. Banks’ nominee director represents the proportion of directors that are
nominated by lending institutions. Treatment is an indicator variable that takes the value of 1
for firms that have above-median likelihood to benefit from forbearance in the form of higher
restructurings. Post is another indicator variable that takes the value of 1 for years 2009 –
2015 and 0 otherwise. included in even-numbered columns, refers to firm-level time-varying
control variables: number of banking relationships, average loan duration, and completed
loans in the last 5 years. stands for firm fixed effects whilerepresents year fixed effects.
Standard errors, presented in parenthesis, are clustered at the firm level. *p<0.1; **p<.05;
***p<0.01. Source: Chopra, Nishesh, and Tantri (2020).
Coefficients for all the variables turn out to be statistically significant at standard levels.
The coefficients are negative for independent directors and banks’ nominee directors and
positive for CEO duality and similarity in board. This suggests that board quality in firms
more likely to benefit from forbearance weakens as their share of independent directors
decreases. Even monitoring by lending institutions declines with a falling representation
of bank-nominated directors. At the same time, incumbent managers in such firms
become more powerful. Boards of such firms are likely to recruit members connected
to their management and the likelihood of a firm’s CEO also being the board’s chairman
increases. Collectively, this suggests that forbearance leads to an increase in incumbent
management’s influence over the board.