Banker-Directors and CEO Inside Debt

52 Pages Posted: 23 Jan 2018 Last revised: 4 May 2018

See all articles by Piotr Korczak

Piotr Korczak

University of Bristol - Department of Finance and Accounting

Trang Nguyen

University of Glasgow

Mariano Scapin

University of Bristol - School of Accounting and Finance

Date Written: April 7, 2018

Abstract

Using employment history of over 17,000 directors of non-financial firms, we find that boards with directors who have executive experience in a commercial bank compensate CEOs with higher inside debt. This result is consistent with arguments that professional experience shapes decision-making. The experience effect dominates the potential conflict of interest effect. In line with the experience argument, the result holds for both current and past bank executives and for directors from both banks which are and banks which are not the firm’s creditors. These results are robust to several specifications addressing potential endogeneity. The increase in inside debt associated with banker-directors moves the CEO’s incentives closer to the optimum in which agency costs of outside debt are minimized to benefit shareholders. In line with the monitoring role of bankers, we also find that the link between inside debt and banker-directors is stronger in firms with weaker corporate governance standards.

Keywords: inside debt, banker-directors, experience, conflict of interest

JEL Classification: D81, G34, M1

Suggested Citation

Korczak, Piotr and Nguyen, Trang and Scapin, Mariano, Banker-Directors and CEO Inside Debt (April 7, 2018). Available at SSRN: https://ssrn.com/abstract=3102462 or http://dx.doi.org/10.2139/ssrn.3102462

Piotr Korczak

University of Bristol - Department of Finance and Accounting ( email )

8 Woodland Road
Bristol BS8 1TN
United Kingdom
+44 117 394 1491 (Phone)

HOME PAGE: http://sites.google.com/view/piotrkorczak/home

Trang Nguyen

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Mariano Scapin (Contact Author)

University of Bristol - School of Accounting and Finance ( email )

The Priory Road Complex
Priory Road
Clifton, BS8 1TU
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
98
Abstract Views
1,041
rank
363,600
PlumX Metrics