Corporate Governance, Credit Condition, and the Cost of Debt
Duke University - Fuqua School of Business
University of Baltimore
September 14, 2011
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, K22working papers series
Date posted: July 19, 2010 ; Last revised: May 8, 2012
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