How Does Shareholder Governance Affect the Cost of Borrowing? Evidence from the Passage of Anti-Takeover Provisions

71 Pages Posted: 16 Nov 2016 Last revised: 25 Apr 2022

See all articles by Yukun Liu

Yukun Liu

University of Rochester - Simon Business School

Xi Wu

Haas School of Business, University of California Berkeley

Date Written: February 22, 2019

Abstract

This paper examines the effect of shareholder governance on firms' cost of borrowing. Using voting results on shareholder-sponsored anti-takeover governance proposals, we find significant and negative reactions in the public debt market to the passage of these governance proposals. Banks also demand higher interest rates and more general covenants after the passage of these proposals. The effects are more pronounced for ex ante risky firms. Moreover, firms with proposals passed become more volatile, indicating an increase in risk-shifting incentives of the firms. Collectively, our findings suggest that shareholder governance can exacerbate shareholder-debtholder conflicts and raise firms' costs of borrowing.

Keywords: Shareholder Governance, Public Debt, Private Debt, Voting, Regression Discontinuity

JEL Classification: G14, G21, G32, G34

Suggested Citation

Liu, Yukun and Wu, Xi, How Does Shareholder Governance Affect the Cost of Borrowing? Evidence from the Passage of Anti-Takeover Provisions (February 22, 2019). Available at SSRN: https://ssrn.com/abstract=2869446 or http://dx.doi.org/10.2139/ssrn.2869446

Yukun Liu

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Xi Wu (Contact Author)

Haas School of Business, University of California Berkeley ( email )

United States

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