Corporate Boards and the Leverage and Debt Maturity Choices

Abstract:     
Debt, and in particular, short-term debt have the potential to discipline managers. We examine the role of the board in making financing decisions that provide this discipline. Specifically, given a firm's characteristics, we predict that stronger boards will force the firm to hold more debt and more short-term debt. Employing a rich dataset of board characteristics and controlling for other aspects of a firm's corporate governance, we find support for these hypotheses. Our simple measure of director power is a robust and promising measure of internal governance.

Number of Pages in PDF File: 36

Keywords: leverage, debt maturity, board effectiveness, incentive alignment, director power, governance

JEL Classification: G32, G34

working papers series