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Corporate boards and bank loan contracting

  • Francis, Bill

    ()

    (Rensselaer Polytechnic Institute)

  • Hasan, Iftekhar

    ()

    (Fordham University and Bank of Finland)

  • Koetter, Michael

    (University of Groningen)

  • Wu, Qiang

    (Rensselaer Polytechnic Institute)

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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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1214.pdf
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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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