Corporate Boards and Bank Loan Contracting
46 Pages Posted: 10 Dec 2011
Date Written: December 7, 2011
This paper investigates the role of corporate boards in bank loan contracting. We find that when corporate boards are more independent, both price and nonprice loan terms (e.g., interest rates, collateral, covenants, and performance-pricing provisions) are more favorable and syndicated loans comprise more lenders. In addition, board size, audit committee structure, and other board characteristics influence bank loan prices. However, they do not consistently affect all nonprice loan terms except for audit committee independence. Our study provides strong evidence that banks tend to recognize the benefits of board monitoring in mitigating information risk ex ante and controlling agency risk ex post, and they reward higher-quality boards with more favorable loan contract terms.
Keywords: Bank loan contracting, Boards of directors, Board independence, Monitoring
JEL Classification: G21, G34
Suggested Citation: Suggested Citation