Corporate Boards and Bank Loan Contracting

46 Pages Posted: 10 Dec 2011

See all articles by Qiang Wu

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 7, 2011

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 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

Wu, Qiang and Francis, Bill and Hasan, Iftekhar and Koetter, Michael, Corporate Boards and Bank Loan Contracting (December 7, 2011). Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1969677

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)

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/

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