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Do busy directors influence the cost of debt? An examination through the lens of takeover vulnerability

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  • Chakravarty, Sugato
  • Rutherford, Leann G.

Abstract

We investigate the effects of board busyness on firms' cost of debt by analyzing the relationship through a hostile takeover framework. We initially establish an inverse relationship between board busyness and firms' hostile takeover vulnerability. Next, we test the relationship between board busyness and the cost of debt. Our results suggest that as the level of board busyness increases, the cost of debt decreases. Economically, the cost of debt for firms whose board is comprised of 40% busy directors is about 30bps lower, compared to those without busy directors. Our results survive extensive robustness checks and provide a positive counterpoint to the negative correlation between board busyness and firm performance.

Suggested Citation

  • Chakravarty, Sugato & Rutherford, Leann G., 2017. "Do busy directors influence the cost of debt? An examination through the lens of takeover vulnerability," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 429-443.
    • Handle: RePEc:eee:corfin:v:43:y:2017:i:c:p:429-443
    DOI: 10.1016/j.jcorpfin.2017.02.001
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    More about this item

    Keywords

    Busy boards; Private loans; Cost of debt; Takeover vulnerability;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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