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Creditor control rights and board independence

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Listed:
  • Ferreira, Daniel
  • Ferreira, Miguel A.
  • Mariano, Beatriz

Abstract

We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk and CEO cash compensation than firms without such appointments. We conclude that a firm’s board composition, governance, and policies are shaped by current and past credit agreements.

Suggested Citation

  • Ferreira, Daniel & Ferreira, Miguel A. & Mariano, Beatriz, 2018. "Creditor control rights and board independence," LSE Research Online Documents on Economics 84463, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:84463
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    File URL: http://eprints.lse.ac.uk/84463/
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    References listed on IDEAS

    as
    1. Cem Demiroglu & Christopher M. James, 2010. "The Information Content of Bank Loan Covenants," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3700-3737, October.
    2. Greg Nini & David C. Smith & Amir Sufi, 2012. "Creditor Control Rights, Corporate Governance, and Firm Value," The Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1713-1761.
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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