The Effectiveness of Corporate Boards: Evidence from Bank Loan Contracting
AbstractThis paper investigates the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and non-price loan terms (e.g., interest rates, collateral, covenants and performance pricing) are more favorable and syndicated loans comprise more lenders. In addition, board size, board diversity, audit committee structure and other director characteristics also influence bank loan price. However they do not consistently affect all non-price loan terms except for audit committee independence. Moreover, the impact of board independence on bank loans varies with borrower characteristics (e.g., leverage, tangibility and anti-takeover environments) and loan characteristics (e.g., loan types and loan structures). Overall, our study provides strong evidence that banks tend to recognize the benefits of board monitoring in mitigating agency risk and information risk, and reward borrowers with higher quality boards with more favorable loan contract terms.
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Bibliographic InfoPaper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2009-08.
Length: 67 p.
Date of creation: Nov 2009
Date of revision:
Bank loan contracting; Boards of directors; Corporate governance; Monitoring; SOX;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
- NEP-BAN-2010-03-28 (Banking)
- NEP-BEC-2010-03-28 (Business Economics)
- NEP-CTA-2010-03-28 (Contract Theory & Applications)
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- Joern Kleinert & Bettina Brueggemann & Esteban Prieto, 2012. "The Ideal Loan and the Patterns of Cross-Border Bank Lending," Graz Economics Papers 2012-03, University of Graz, Department of Economics.
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