Creditor Control Rights and Board Independence

84 Pages Posted: 2 Mar 2017

See all articles by Daniel Ferreira

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Beatriz Mariano

Humboldt University of Berlin - Institute of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 2017

Abstract

We find that the number of independent directors on corporate boards increases by approximately 24% following financial covenant violations in credit agreements. Most of these new directors are linked to creditors. Firms with stronger lending relationships with their creditors appoint more new directors in response to covenant violations than firms without such relationships. Moreover, firms that appoint new directors after violations are more likely to issue new equity and decrease CEO cash compensation than firms without such appointments. We conclude that a firm's board composition, governance, and policies are shaped by current and past credit agreements.

Suggested Citation

Ferreira, Daniel and Ferreira, Miguel Almeida and Mariano, Beatriz, Creditor Control Rights and Board Independence (February 2017). CEPR Discussion Paper No. DP11870. Available at SSRN: https://ssrn.com/abstract=2924730

Daniel Ferreira (Contact Author)

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)

HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Beatriz Mariano

Humboldt University of Berlin - Institute of Finance ( email )

Spandauer Str. 1
Berlin, 10099
Germany

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