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Creditor Control Rights and Board Independence

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  • DANIEL FERREIRA
  • MIGUEL A. FERREIRA
  • BEATRIZ MARIANO

Abstract

We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk, and CEO cash compensation, than firms without such appointments. We conclude that a firm's board composition, governance, and policies are shaped by current and past credit agreements.

Suggested Citation

  • Daniel Ferreira & Miguel A. Ferreira & Beatriz Mariano, 2018. "Creditor Control Rights and Board Independence," Journal of Finance, American Finance Association, vol. 73(5), pages 2385-2423, October.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:5:p:2385-2423
    DOI: 10.1111/jofi.12692
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