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Corporate boards and bank loan contracting

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Author Info

  • Francis, Bill

    ()
    (Rensselaer Polytechnic Institute)

  • Hasan, Iftekhar

    ()
    (Fordham University and Bank of Finland)

  • Koetter, Michael

    (University of Groningen)

  • Wu, Qiang

    (Rensselaer Polytechnic Institute)

Abstract

We investigate the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance-pricing provisions) are more favorable, and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks tend to recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher quality boards with more favorable loan contract terms.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 14/2012.

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Length: 49 pages
Date of creation: 12 Apr 2012
Date of revision:
Handle: RePEc:hhs:bofrdp:2012_014

Contact details of provider:
Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: corporate governance; corporate boards; loan contract terms;

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References

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Citations

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Cited by:
  1. Francis, Bill & Hasan, Iftekhar & Wu, Qiang, 2011. "The impact of CFO gender on bank loan contracting," Research Discussion Papers 18/2011, Bank of Finland.
  2. Kjenstad, Einar & Su, Xunhua, 2012. "Product Market Predatory Threats and the Use of Performance-sensitive Debt," MPRA Paper 44114, University Library of Munich, Germany.
  3. Hasan, Iftekhar & Hoi, Chun Keung (Stan) & Wu, Qiang & Zhang, Hao, 2014. "Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans," Journal of Financial Economics, Elsevier, vol. 113(1), pages 109-130.
  4. Francis, Bill B. & Hasan, Iftekhar & Wu, Qiang, 2012. "Do corporate boards matter during the current financial crisis?," Review of Financial Economics, Elsevier, vol. 21(2), pages 39-52.

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