The Manager - Shareholder Agency Conflict: Do Banks Prefer Non-Alignment?

49 Pages Posted: 2 Mar 2012 Last revised: 17 Sep 2013

See all articles by Tim Eisert

Tim Eisert

Erasmus University Rotterdam (EUR)

Christian W. Hirsch

University of Frankfurt; Leibniz Institute for Financial Research SAFE

Date Written: January 31, 2013

Abstract

This paper studies the link between the agency costs of equity and the agency costs of debt. Using a unique sample of the ownership structure of single and dual class firms as well as hand-collected data on loan contracts, we find that the agency cost of debt – proxied by various loan contracts terms - increases in the voting power of the largest outside shareholder, our primary measure of the agency cost of equity. We provide evidence that these results are consistent with debt holders being concerned about the high risk-shifting incentives of equity holders.

Keywords: blockholder, capx covenant, bank loan, risk-shifting

JEL Classification: G34, G32

Suggested Citation

Eisert, Tim and Hirsch, Christian W., The Manager - Shareholder Agency Conflict: Do Banks Prefer Non-Alignment? (January 31, 2013). Available at SSRN: https://ssrn.com/abstract=2014178 or http://dx.doi.org/10.2139/ssrn.2014178

Tim Eisert (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Christian W. Hirsch

University of Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
+49 69 798 33704 (Phone)
+49 69 798 33901 (Fax)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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