Abstract

http://ssrn.com/abstract=1645326
 
 

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Does Board Independence Reduce the Cost of Debt?


Michael Bradley


Duke University - Fuqua School of Business

Dong Chen


University of Baltimore

February 4, 2014


Abstract:     
Using the passage of the Sarbanes-Oxley Act and the associated change in listing standards as a natural experiment, we find that while board independence decreases the cost of debt when credit conditions are strong or leverage low, it increases the cost of debt when credit conditions are poor or leverage high. We also document that independent directors set corporate policies that increase firm risk. These results suggest that, acting in the interest of shareholders, independent directors are increasingly costly to bondholders with the intensification of the agency conflict between these two stakeholders.

Number of Pages in PDF File: 47

Keywords: corporate governance, Sarbanes-Oxley Act, board independence, risk-taking, credit condition, leverage, bondholder/shareholder conflict, cost of debt, propensity score

JEL Classification: G34, K22

working papers series


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Date posted: July 19, 2010 ; Last revised: June 3, 2014

Suggested Citation

Bradley, Michael and Chen, Dong, Does Board Independence Reduce the Cost of Debt? (February 4, 2014). 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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