How Do Board Reforms Affect Debt Financing Costs Around the World?

Chen Lin

31 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Insolvency and Governance

Abstract

Abstract In this study, we examine the effect of worldwide board reforms on the cost of debt financing. We document an increase of loan spread after a country initiates the reform. The increase is larger among firms that are more exposed to shareholder–debtholder conflicts. The results suggest that board reforms empower shareholders at the cost of debtholders. However, we also find that, while the reform component related to board independence leads to the increase in the cost of debt, the component related to audit committee independence helps decrease the cost.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1997A Survey of Corporate Governance 1977Determinants of corporate borrowing 1995What Do We Know about Capital Structure? Some Evidence from International Data 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*1992Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt 2002Market Timing and Capital Structure

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