Do Banks Price Independent Directors’ Attention?
42 Pages Posted: 15 Feb 2017 Last revised: 10 Feb 2020
Date Written: February 14, 2017
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: Suggested Citation