Corporate Boards and Bank Loan Contracting
52 Pages Posted: 18 May 2012
Date Written: April 12, 2012
We investigate 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: corporate governance, corporate boards, loan contract terms
JEL Classification: G21, G34
Suggested Citation: Suggested Citation