BANK LOANS AND CORPORATE-BOARD REPRESENTA TION - THE RELATION BETWEENRESOURCES FLOWS AND INTERORGANIZATIONAL NETWORKS

Examination of resource exchanges between individual firms is often es sential to test theories of interorganizational networks. Using previo usly unavailable data on bank loans to U.S. nonfinancial corporations from 1938 through 1941, this paper examines for the first rime with U. S. data the relation between bank loans and board representation. Alth ough most nonfinancial corporations have bank officers on their boards , fewer than half of these ties represent lending banks. Drawing on th e resource dependence perspective, political sociology, and agency the ory, we develop a model to predict the conditions under which the bank ers on a firm's board represent the firm's lenders. Loans are most lik ely to be accompanied by board representation when the amounts are lar ge and the firm's profits are low. This suggests that board representa tion is a means employed by banks to monitor their loans under high-ri sk conditions.