Traditionally, fiduciaries' duty of loyalty requires them not to pursue business opportunities that could benefit their own companies. However, starting with Delaware in 2000, several states began allowing companies to waive this duty. We find that the debt structure of firms in waiver-adopting states shifts from public debt to bank debt, suggesting that these firms rely on more intense bank monitoring to address potential managerial disloyalty. The shift is more pronounced for firms with CEOs who are more likely to appropriate business opportunities and less pronounced for firms with stronger shareholder monitoring. We also find that bank debt mitigates the adverse effect of corporate opportunity waivers on shareholder wealth, the stock market reacts positively to the bank debt issuances of firms affected by these waivers, and corporate opportunity waiver laws increase the total debt market funding costs for affected firms. Collectively, our paper provides novel evidence that firms seek creditor governance to mitigate the loss of internal governance resulting from changes in the legal environment.

We examine the effect of inside directors with outside directorship, denoted as talented inside directors (TIDs), on corporate social responsibility (CSR) using 17,668 U.S. firm-year observations from 1998 to 2016. We find a significantly negative association between TIDs and excessive CSR and the result remains unchanged after correcting for endogeneity concern. We further shed light on how TIDs reduce excessive CSR through playing monitoring and advisory roles. The result showing a high sensitivity of CEO turnover to excessive CSR in firms with TIDs renders support to the monitoring hypothesis of TIDs. We further demonstrate that the baseline result is more pronounced for TIDs who are more likely to replace CEOs, for positive CSR activities that are more likely to enhance CEOs' personal benefits, and in firms that agency problems are more severe, providing additional evidence to support the monitoring hypothesis. This study also supports the advisory role of TIDs by showing that the baseline result is more pronounced in firms with high demand for board advice. Finally, we show that investors perceive that TIDs improve the value of CSR. Taken together, this study provides promising evidence that TIDs improve the efficiency of CSR investment by monitoring and advising CEOs.