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Board monitoring, director connections, and credit quality☆

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  • Sandvik, Jason

Abstract

Firms with poor board monitoring effectiveness receive lower credit ratings and larger credit spreads. I identify these effects by using director deaths as exogenous shocks to monitoring effectiveness. These effects are especially pronounced when firms are highly levered. Incremental decreases in monitoring effectiveness impact credit quality the most when a majority of the board members become co-opted by management and when firms are more likely to increase corporate risk.

Suggested Citation

  • Sandvik, Jason, 2020. "Board monitoring, director connections, and credit quality☆," Journal of Corporate Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s092911992030170x
    DOI: 10.1016/j.jcorpfin.2020.101726
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    2. Fan, Yaoyao & Boateng, Agyenim & Ly, Kim Cuong & Jiang, Yuxiang, 2021. "Are bonds blind? Board-CEO social networks and firm risk," Journal of Corporate Finance, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Board monitoring; Corporate governance; Cost of debt; Rating agency; Corporate default;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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