Blockholder Board Representation and Debt Contracting

Posted: 17 Jun 2019 Last revised: 27 May 2022

See all articles by Blair B. Marquardt

Blair B. Marquardt

University of North Texas - Department of Accounting

Juan Manuel Sanchez

University of Texas at San Antonio

Date Written: February 15, 2022

Abstract

We examine the impact of blockholder board representation on a borrower’s bank loan contract terms and find it is associated with lower spreads and fewer negative covenants. When examining the potential channels behind the relationship, we find that blockholder-directors who take dedicated monitoring roles, as opposed to the short-term or confrontational positions often associated with activist shareholders, drive the overall relationship. The findings, which are robust to alternative model specifications and explanations, suggest that blockholder-directors can serve as substitute monitors to debtholders when their incentives are aligned. The results also highlight the heterogeneity among blockholders who actively influence the management process. Accepted at Journal of Banking and Finance May 2022.

Keywords: Blockholders, cost of debt, debt covenants, shareholder activism, board composition

JEL Classification: G23, G32

Suggested Citation

Marquardt, Blair and Sanchez, Juan Manuel, Blockholder Board Representation and Debt Contracting (February 15, 2022). Available at SSRN: https://ssrn.com/abstract=3400811 or http://dx.doi.org/10.2139/ssrn.3400811

Blair Marquardt (Contact Author)

University of North Texas - Department of Accounting ( email )

G. Brint Ryan College of Business
1155 Union Circle #305219
Denton, TX 76203-5017
United States

Juan Manuel Sanchez

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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