Corporate Boards and Bank Loan Contracting

67 Pages Posted: 18 Mar 2009

See all articles by Bill Francis

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Michael Koetter

Halle Institute for Economic Research

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Date Written: March, 17 2009

Abstract

This paper investigates the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and non-price loan terms - e.g., interest rates, collateral, covenants and performance pricing- are more favorable and syndicated loans comprise more lenders. Board size, diversity, tenure, age, audit committee structure and other board characteristics also influence bank loan price. However they do not consistently affect all non-price loan terms except for audit committee independence. Moreover, the impact of corporate boards on bank loans varies with borrower characteristics such as leverage, tangibility and anti-takeover environment, and loan characteristics such as loan type and loan structure. Overall, our study provides strong evidence that banks tend to reward the benefits of board monitoring in mitigating agency risk and information risk with more favorable loan contract terms.

Keywords: Bank loan contracting; Boards of directors; Corporate governance; Monitoring; SOX

JEL Classification: G21, G34

Suggested Citation

Francis, Bill and Hasan, Iftekhar and Koetter, Michael and Wu, Qiang, Corporate Boards and Bank Loan Contracting (March, 17 2009). Available at SSRN: https://ssrn.com/abstract=1361761 or http://dx.doi.org/10.2139/ssrn.1361761

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology ( email )

110 8th St
Troy, NY 12180
United States

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Qiang Wu (Contact Author)

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

110 8th St
Troy, NY 12180
United States
518-276-3338 (Phone)
518-276-8661 (Fax)

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