The Effect of Corporate Board Characteristics on Loan Monitoring Decisions

31 Pages Posted: 25 Feb 2011

See all articles by Judy F. Day

Judy F. Day

University of Manchester - Manchester Business School

Paul R. Mather

La Trobe University

Peter Taylor

Manchester Business School

Date Written: February, 25 2011

Abstract

Motivated by a paucity of research into the impact of corporate governance from a debtholder perspective, we examine the impact of corporate governance on loan monitoring decisions. The active and close involvement of a major UK bank facilitated the development of extremely realistic experimental scenarios with a great deal of accurate institutional detail. The results show that the likelihood of loan officers increasing the level of monitoring in the context of a debt covenant breach is associated with board independence, director financial expertise and the presence of a blockholder. The two-way interaction between financial expertise and board independence is also documented. Apart from extending the academic literature, this study provides empirical evidence on the efficacy of good corporate governance in reducing debt contracting costs that should also be of interest to regulators and practitioners.

Suggested Citation

Day, Judy F. and Mather, Paul R. and Taylor, Peter, The Effect of Corporate Board Characteristics on Loan Monitoring Decisions (February, 25 2011). Finance and Corporate Governance Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1769943 or http://dx.doi.org/10.2139/ssrn.1769943

Judy F. Day

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Paul R. Mather (Contact Author)

La Trobe University ( email )

School of Accounting
Bundoora
Melbourne, Victoria 3086
Australia
+61-3-9479-5264 (Phone)

Peter Taylor

Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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