Corporate Boards and Bank Loan Contracting

52 Pages Posted: 18 May 2012

See all articles by Bill B. Francis

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Michael Koetter

Halle Institute for Economic Research

Qiang Wu

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 12, 2012

Abstract

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

Francis, Bill B. and Hasan, Iftekhar and Koetter, Michael and Wu, Qiang, Corporate Boards and Bank Loan Contracting (April 12, 2012). Bank of Finland Research Discussion Paper No. 14/2012. Available at SSRN: https://ssrn.com/abstract=2060946 or http://dx.doi.org/10.2139/ssrn.2060946

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Iftekhar Hasan (Contact Author)

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/

Qiang Wu

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)

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