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Corporate Governance, Credit Condition, and the Cost of Debt


Michael Bradley


Duke University - Fuqua School of Business

Dong Chen


University of Baltimore

September 14, 2011


Abstract:     
Based on the conflicting incentives among bondholders, shareholders, and managers, we develop two hypotheses relating corporate governance to the cost of debt, depending on a firm’s credit condition. The closer a firm is to default, governance mechanisms that align the incentives of managers with shareholders and the presence of antitakeover devices are increasingly associated with a higher cost of debt. Our empirical analyses using a comprehensive set of governance variables and empirically-validated antitakeover provisions provide broad support for these hypotheses.

Number of Pages in PDF File: 59

Keywords: corporate governance, credit condition, cost of debt, antitakeover laws, antitakeover provisions

JEL Classification: G34, K22

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Date posted: July 19, 2010 ; Last revised: May 8, 2012

Suggested Citation

Bradley, Michael and Chen, Dong, Corporate Governance, Credit Condition, and the Cost of Debt (September 14, 2011). Available at SSRN: http://ssrn.com/abstract=1645326 or http://dx.doi.org/10.2139/ssrn.1645326

Contact Information

Michael Bradley
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-8006 (Phone)
919-660-7971 (Fax)
Dong Chen (Contact Author)
University of Baltimore ( email )
1420 N. Charles Street
Baltimore, MD 21201
United States
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