Do Banks Price Independent Directors’ Attention?

42 Pages Posted: 15 Feb 2017 Last revised: 10 Feb 2020

See all articles by Henry He Huang

Henry He Huang

Yeshiva University - Sy Syms School of Business

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Chong Wang

University of Kentucky

Jian Zhou

University of Hawaii at Manoa

Date Written: February 14, 2017

Abstract

Masulis and Mobbs (2014, 2015) find that independent directors with multiple directorships allocate their monitoring effort unequally based on a directorship’s relative prestige. We investigate whether bank loan contract terms reflect such unequal allocation of directors’ monitoring effort. We find that bank loans of firms with a greater proportion of independent directors for whom the board is among their most prestigious have lower spreads, longer maturities, fewer covenants, lower syndicate concentration, lower likelihood of collateral requirement, lower annual loan fees, and higher bond ratings. Our evidence indicates that independent directors’ attention is associated with lower cost of borrowing.

Keywords: Multiple Directorships, Directors' Attention, Cost of Borrowing, Bank Loan Contracting

JEL Classification: G3, G12

Suggested Citation

Huang, Henry and Lobo, Gerald J. and Wang, Chong and Zhou, Jian, Do Banks Price Independent Directors’ Attention? (February 14, 2017). Journal of Financial and Quantitative Analysis (JFQA), Vol. 53, No. #4, 2018, Available at SSRN: https://ssrn.com/abstract=2916916 or http://dx.doi.org/10.2139/ssrn.2916916

Henry Huang

Yeshiva University - Sy Syms School of Business ( email )

New York, NY 10033
United States

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Chong Wang (Contact Author)

University of Kentucky ( email )

Lexington, KY 40506
United States

Jian Zhou

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

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