Journal of Finance Vol. 73 No. 5 2018

Creditor Control Rights and Board Independence

Daniel Ferreira¹; Miguel A. Ferreira²; Beatriz Mariano^2,3,4,5,6,7

¹ London School of Economics and Political Science · ² Center for Economic and Policy Research · ³ City, University of London · ⁴ European Steel Association · ⁵ London Business School · ⁶ The University of Texas at Austin · ⁷ University of Hong Kong

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.

DOI

10.1111/jofi.12692

Volume

73

Issue

5

Pages

2385-2423

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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