The Effects of Financial Distress and Capital Structure on the Work Effort of Outside Directors

37 Pages Posted: 12 Jan 2010 Last revised: 4 Mar 2011

See all articles by Hsin-I Chou

Hsin-I Chou

University of Otago - Department of Accountancy and Finance

(Michael) Hui Li

La Trobe University; Financial Research Network (FIRN)

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: January 12, 2010

Abstract

This paper investigates the conflict of interests between shareholders and debtholders by examining the work effort of outside directors when a company experiences financial distress or has a high financial leverage. We find that at both company level and individual director level: (i) outside directors of a firm with higher financial distress work less hard controlling for financial leverage; (ii) outside directors of a firm with a higher financial leverage work harder controlling for financial distress.

Keywords: Work effort, Outside director, Financial distress, Financial Leverage, Board meeting

JEL Classification: G30

Suggested Citation

Chou, Hsin-I and Li, (Michael) Hui and Yin, Xiangkang, The Effects of Financial Distress and Capital Structure on the Work Effort of Outside Directors (January 12, 2010). Journal of Empirical Finance, Vol. 17, No. 3, pp. 300-312; Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1535335

Hsin-I Chou (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

PO Box 56
Dunedin, 9054
New Zealand

(Michael) Hui Li

La Trobe University ( email )

Department of Economics and Finance
La Trobe University
Melbourne, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Xiangkang Yin

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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