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Given the economic importance of bank loan financing worldwide, we empirically investigate the role of founding family ownership in bank loan contracts after controlling other governance practices via individual bank loan contracts in Taiwan. We first find that founding family firms can enjoy favorable loan contracts in terms of loan spread. Second, we find that these favors tend to decrease or even disappear when founding families are more likely to expropriate other investors or when the information asymmetry between the borrower and the bank is not severe. Third, we document that the favorable spread effect of founding family firms enlarge for firms with greater credit risk, or during periods of financial crisis.

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