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The certification role of bank directors on;corporate boards

  • Giacomo Cau

    ()

    (Banca d'Italia)

  • Massimiliano Stacchini

    (Banca d'Italia, Economics and International Relations Area)

Registered author(s):

    There is a large literature on the effects of the presence of bankers on firms'boards as these bankers may reduce monitoring costs by facilitating information flows between the lender and the borrower, may credibly certify the financial soundness of the firm to other creditors who are not represented in the board and may act as financial experts for the management. At the same time, lending bankers on boards may have a conflict of interests. In this paper, we study the impact of the presence of bankers on firms' boards on interest rates charged to firms. We have two results.;First, as interest rates on loans from the board director's bank and from other banks are very similar we do not find evidence of a conflict of interests effect. Second, we have strong evidence of certification effects played by bank directors as rates charged by all banks on loans to firms with bankers on boards are lower than those charged by all banks to firms without bankers. The certification effect is even stronger if the banker on board has itself loaned to the firm.

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    File URL: http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir046.pdf
    File Function: First version, 2010
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    Paper provided by Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences in its series Mo.Fi.R. Working Papers with number 46.

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    Length: 30
    Date of creation: Nov 2010
    Date of revision:
    Handle: RePEc:anc:wmofir:46
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    2. Brunello, Giorgio & Graziano, Clara & Parigi, Bruno, 2000. "Ownership or Performance: What Determines Board of Directors' Turnover in Italy?," IZA Discussion Papers 105, Institute for the Study of Labor (IZA).
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    19. Dewatripont, Mathias & Tirole, Jean, 1994. "A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1027-54, November.
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    22. Byrd, Daniel T. & Mizruchi, Mark S., 2005. "Bankers on the board and the debt ratio of firms," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 129-173, March.
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