94 Pages Posted: 15 Mar 2012 Last revised: 8 Sep 2017
Date Written: June 14, 2017
We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors have links to creditors. Firms that appoint new directors after violations are more likely to issue new equity, and to decrease payout, operational risk and CEO cash compensation than firms without such appointments. We conclude that a firm's board composition, governance, and policies are shaped by current and past credit agreements.
Keywords: Corporate boards, Corporate governance, Covenant violations
JEL Classification: G21, G32, G33, G34
Suggested Citation: Suggested Citation
Ferreira, Daniel and Ferreira, Miguel A. and Mariano, Beatriz, Creditor Control Rights and Board Independence (June 14, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 443/2014. Available at SSRN: https://ssrn.com/abstract=2021522 or http://dx.doi.org/10.2139/ssrn.2021522