Review of Financial Studies Vol. 38 No. 6 2025
Short-Term Debt and Corporate Governance
Abstract
According to existing theories, short-term creditors promote corporate governance by responding quickly to new information. I show that this very feature of short-term debt can also undermine corporate governance. Though moderate levels of short-term debt improve the efficacy of blockholder exit and increase blockholders’ incentives to engage with the firm, high levels of short-term debt impair governance. In particular, high levels of short-term debt render the threat of exit noncredible, make public engagements too risky, and undermine blockholders’ incentives to engage behind the scenes. I identify a challenge in the governance of firms that rely on short-term funding such as banks.
- DOI
- 10.1093/rfs/hhaf018
- Volume
- 38
- Issue
- 6
- Pages
- 1868-1919
- Language
- en
- Sources
- bibtex:phds-export.bib crossref